Cryptocurrency Mining Rewards
Innovative developers are working to change the world by redefining the concept of value through the use of blockchain technology. Blockchains are indelible records that come in many varieties, the most widely recognized of which is Bitcoin. Miners create Cryptocurrency by encrypting data which is then stored on multiple computers. Miners receive Cryptocurrency as a reward for investing computing power. Cryptocurrency mining rewards (a/k/a “Virtual Currency”) are considered to be intangible property by Internal Revenue Service (IRS). If you receive Cryptocurrency as a mining reward then you are required to report the fair market value (FMV) of the coin as gross income.
Fair Market Value of Cryptocurrency Mining Rewards
To determine whether a particular Cryptocurrency has a FMV you must understand the nature of the coin. As of the date of this article there are over 1,300 different Cryptocurrencies in development. Not all Cryptocurrencies have a fair market value (FMV). Some coins can only be used within a particular virtual environment, such as the coins that are earned within certain Massively Multiplayer Online Games. (eg. Neverwinter, Guild Wars 2, and World of Warcraft). In-game currencies are usually not considered as income. However, if you mine a Cryptocurrency which can be converted into legal tender or exchanged for something of value (e.g. goods and services) then the coin has a fair market value.
Date of Valuation of Cryptocurrency Mining Rewards
The date of valuation for a mining reward is the date that you receive the Cryptocurrency. If the coin is listed on a public exchange then the FMV is the market price of the Cryptocurrency on the date that you receive it. However, it is more difficult to determine the value of coins which are not publicly traded or can not be converted to legal tender. Barter dollars are a prime example of a currency that are not generally traded on an exchange. A barter coin is worth the fair market value of the goods or services that the coin represents on the date the coin is received.
Developing Cryptocurrency Mining Rewards
Miners are the workforce of the emerging crypto-economy. If you are a Miner then you must report your mining rewards as income. If you are a developer then it is your obligation to minimize the Miner’s taxable income while maximizing their benefits. Your development decisions will have significant implications for them. If you are working on a Cryptocurrency project then you should hire an experienced attorney with a strong programming background. I have been practicing law for over 20 years and started programming when a 300 baud modem was the fastest connection possible. You can schedule time to speak with me by sending email to Contact@CentralFloridaAttorney.net