Is the high tax burden on Bitcoin a problem? A new tax planning approach based on Mining Rig depreciation policy.

Written by: FinTax

1. Bitcoin price soars

In recent years, the price of Bitcoin has experienced several rounds of strong increases. At the beginning of 2023, the price of Bitcoin was only about $20,000, and now, the price of Bitcoin has long surpassed the $100,000 mark and has maintained a high level, nearly quintupling. The continuous rise of Bitcoin over more than two years reflects the global liquidity environment, institutional allocation demand, and the trend of digital assets entering the mainstream financial system.

Data source: yahoo finance, chart FinTax self-made

2. High returns come with high tax burdens

However, the other side of the price surge is the real problem faced by Bitcoin investors when cashing out - with the tightening of tax regulations in various countries, there is significant tax pressure on the gains from cashing out BTC.

For example, in the United States, the IRS views cryptocurrencies as assets. Therefore, when selling, trading, or disposing of crypto assets, the income will be considered capital gains or ordinary income and taxed at the relevant rates. Specifically speaking:

If the holding period for cryptocurrency is less than one year, short-term capital gains tax must be paid, with the rate calculated based on ordinary income tax rates, which vary according to the individual's annual income, ranging from 10% to 37%.

The federal income tax rate for the 2025 tax year is:

If you hold cryptocurrency for more than a year, you are required to pay long-term capital gains tax, which is subject to preferential tax rates. Most taxpayers will pay rates of 0%, 15%, or 20%.

The long-term cryptocurrency capital gains tax rate for 2025 is:

3. New Tax Planning Ideas Based on Accelerated Depreciation Policy

However, a heavier tax burden does not mean that taxpayers have completely lost planning space. By reasonably utilizing the provisions of the U.S. tax law system, it is still possible to reduce the effective tax burden while remaining compliant. For example, the “accelerated depreciation” policy stipulated in Section 168 of the U.S. tax law allows taxpayers to deduct the full cost of fixed assets such as mining machines or servers in the year of purchase, significantly reducing taxable income. The specific provisions are as follows.

(k)Special allowance for certain property

(1)Additional allowance

In the case of any qualified property—

(A) the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to 100 percent of the adjusted basis of the qualified property, and

(B) the adjusted basis of the qualified property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.

To illustrate the implementation effect of this tax planning method with a simple example: A mining company in the United States earns an income of 1 million dollars in 2024 and invests 500,000 dollars in purchasing mining machines that year. Assuming the corporate income tax rate is 21%.

If applicable §168(k) accelerated depreciation policy: the company can deduct a total cost of 500,000 dollars in one go for the year, and the income tax is approximately:

(100-50)×21%=10.5 million USD

If using conventional methods such as five-year straight-line depreciation: $100,000 can only be deducted each year, and the income tax is approximately:

(100−10)×21%=189,000 USD

It is important to note that when using the accelerated depreciation method, one needs to consider the cost situation of the year to avoid profit loss and subsequent carryforward losses. For example, an American mining company invested $500,000 in mining machines in 2024, but generated an income of $400,000 that year.

If the accelerated depreciation policy §168(k) is still adopted:

The company can deduct the total cost of 500,000 USD in one go for the year, but due to low income, this will result in a net operating loss of 100,000 USD (NOL, Net Operating Loss). Although the current profit is negative and no income tax is payable, it also means that the company cannot withdraw or distribute profits, even though there is still cash flow on the books. At the same time, in terms of tax treatment, according to current regulations, the NOL carried forward to the next year can only offset 80% of the taxable income for that year, so blindly using accelerated depreciation in a low-profit year is not a wise move.

IV. Conclusion

Overall, while the continuous rise in Bitcoin prices has brought considerable investment returns, it has also highlighted tax issues more prominently. In the face of increasing regulatory scrutiny and rising tax burdens, blindly avoiding risks is not advisable; instead, understanding and effectively utilizing the compliance policy clauses in current tax laws for tax planning is a more rational choice. Taking the “accelerated depreciation” policy under §168(k) as an example, it provides a legitimate way for the capital-intensive crypto industry to reduce taxes and optimize cash flow. This case also reiterates that conducting systematic planning within a compliance framework and leveraging the space created by institutional design to alleviate the tax burden is key to achieving sustainable development for cryptocurrency investors.