tax tips:
1. When given ability to take rapid depreciation of equipment, do it
2. Always sell btc as "specific ID" so you are not paying capital gains on old mined bitcoin that has appreciated but bitcoin that is very recently mined with no price appreciation
3. Keep track of all utxo lots via their transaction ID in case audited
this is good advice, ty
Point 2 is problematic in many countries, especially in Europe. They allow weighted average or FIFO accounting, not selling specific utxos nor LIFO.
wow...did not know that LIFO was prohibited... yikes...since btc is an property asset like a house seems like you could specify that you are indeed selling a specific "house" aka "utxo"
interesting to see if anyone challenges this since when they sell barrels of oil they are indeed committing to a lot of oil on their futures contracts
How would it work on lightning or a custodial wallet though?
not sure how to do accounting on lightning that is a good question.
in terms of a routing node just keep track of fees and expenses. the utxo cost basis is irrelevant as it just serves as the functioning infrastructure of the node
I think the question itself is a bit insane, but here you go:
- all the bitcoin you own has a weighted average acquisition price. By getting more bitcoin, you adjust the price by current market price.
- getting payment is income, so you account for income at the current fiat value (it is unrelated to capital gains tax, you tax income and later if you sell the btc also capital gains)
- selling btc you calculate from the weighted average. That does not change the weighted average but can create a tax liability.
Better way if you want to be compliant: never ever sell your btc. Use it as a collateral for a loan. Not selling - no capital gains (although you still have to deal with income). This way you keep your maximal long position on btc, you are shorting fiat (that's an additional upside if its purchasing power decreases faster for you - CPI is irrelevant - than the interest rate).
How to do it: book with this and other tricks for crypto life: https://hackyourself.io/product/cryptocurrencies-hack-your-way-to-a-better-life/
Course specifically for collateralized loans: https://hackyourself.io/product/how-to-harness-the-value-of-bitcoin-without-having-to-sell-it-ebook-mini-course/
This is something many of us do, not only for tax benefits, but it's just a better lifestyle, you are riding the decrease of fiat purchasing power and bitcoin as hard money (and thus great collateral) at the same time. Enjoy !
