Bitcoin miners may be interested in a new tax-sheltering IRA developed by Choice and Compass Mining. So let’s talk about it.*
A Tax-Sheltering IRA for Bitcoin Miners? How Does it Work?
The Choice and Compass Mining vehicle allows people and businesses to purchase Bitcoin mining machines through an IRA to shield profits. But how?
Mining and selling tokens can trigger two taxable events:
- The gross income burden of mining new coins — since you must report the fair market value of each newly minted token at the time of receipt
- Capital gains tax upon selling tokens
So, when entities successfully mine Bitcoin, it creates a taxable event, and they must pay ordinary income tax on their net earnings. A second taxable event occurs whenever the Bitcoins are sold.
If you sell crypto tokens within a year, you pay short-term capital gains equivalent to the ordinary income tax rate. If you hold for more than a year, you must pay long-term capital gains, which are significantly less but still bite into profits.
With the introduction of Choice’s new investment vehicle, Bitcoin miners can purchase mining machines from Compass, which shelters profits and allows crypto earnings to grow tax-free and compound at a much faster rate.
Of course, as with all traditional IRAs, withdrawing money from it will trigger a taxable event. Nevertheless, if everything works as marketed, participants may profit more than miners whose investments aren’t growing tax-free year over year.
Can Miners Add Their Own Servers to a Choice Crypto IRA?
What if you already have your own mining rigs? Can you retroactively add them into an IRA with Choice? Unfortunately, no. You cannot move preexisting rigs into this tax structure because the exemption is dependent on the fund buying machinery with the IRA’s vested capital.
So how much will it cost? Mining machines from Compass Mining are about $10,000. Participants must also pay a $500 one-time setup fee, a recurring annual charge of $150, plus electricity and hosting costs. But for those who can swing it, the returns can be tasty.
As Radloff, the CEO of Choice, explains:
“You’re generating Bitcoin returns every week and before you might have to sell that Bitcoin to cover your tax bill and other costs…now you can cover your costs with the tax-efficient Bitcoin generated from your IRA. It creates a circular Bitcoin economy.”
Connect with a Cryptocurrency Law Firm
The Kelly Law Firm has long worked with businesses and entrepreneurs in the cryptocurrency market. We handle contracts, compliance, litigation, and profit positioning consultations. If you’re a crypto or blockchain company in need of legal assistance, let’s talk.
*To be clear, we in no way endorse the products and services discussed herein. We’re not associated with them in any way. But as a law firm that works with cryptocurrency and blockchain businesses, we thought the new venture may be of interest to parties in the space.