Bitcoin Mining, Electricity Capitalization and Tax Shield

Bitcoin mining isn’t just about hardware and hash power — it’s also an accounting and tax strategy opportunity. By strategically managing how electricity is tracked, allocated, and capitalized into the cost basis of mined Bitcoin, miners can create legitimate losses and deductions that offset other business income. This guide brings together practical guidance on electricity cost tracking, capitalization, specific identification accounting, tax loss harvesting, and structuring around software businesses funded by mining-related activities.

Capitalizing Electricity in Bitcoin Mining

Electricity used in Bitcoin mining can be either expensed or capitalized. The default is to deduct it as an operating expense, but you can capitalize it into the basis of the Bitcoin mined, provided you use a consistent and well-documented method. You may choose to capitalize only a portion of electricity costs (e.g., 60% for production rigs), while expensing the rest (e.g., admin usage, test rigs). This split is valid and beneficial when done consistently with clear supporting logs.

When Is Bitcoin “Earned”?

Bitcoin is considered earned — and thus taxable — at the moment you gain “dominion and control” over it. For solo miners, this is when the block reward is credited to your wallet. For pool miners, it’s when your payout is distributed. At that time, the fair market value (FMV) in USD becomes the amount of income recognized, and that same FMV becomes your cost basis unless you’ve capitalized expenses into it.

Specific Identification and Tax Loss Harvesting

To optimize gains or harvest losses, miners should use specific identification accounting. This means you must track exactly which BTC lots are being sold, their original basis (including any capitalized costs), and their acquisition dates. Without this, you’re defaulted to FIFO (First-In, First-Out), which may reduce your flexibility. Specific ID lets you sell high-basis BTC for losses while keeping low-basis BTC for gains.

Importantly, as of 2025, the wash sale rule does not apply to crypto. This allows you to sell BTC at a loss, recognize that loss, and repurchase the BTC immediately without disallowing the deduction. This creates a unique tax planning opportunity for reinvestment or offsetting other gains.

Tracking Electricity in Google Sheets

Electricity costs can be tracked manually or semi-automatically using Google Sheets. Input rig wattage, runtime, and cost per kWh to calculate total electricity usage and allocate it per BTC earned. You can also integrate mining pool data and use a blend of submetering and utility bill breakdowns to track usage more precisely. Green Button data from utilities or smart meters like Shelly EM or Emporia Vue can feed data into CSVs that sync with Google Sheets.

Integration from Utility and Submeter Data

Power companies may allow CSV downloads or access to Green Button standardized energy data, while smart submeters provide kWh data per circuit or device. These data sources can be merged into a central tracking system using CSVs or even MQTT/REST APIs if more automation is desired. Tools like Node-RED, Google Apps Script, and Zapier help with automating this process to ensure rig-by-rig electricity tracking aligns with payout intervals.

Crypto Fees, Basis, and Cost Management

Fees paid during BTC transactions — such as mining pool fees, gas fees, and transfer costs — should be added to the basis of the asset if they’re related to acquisition or sale. If you’re transferring BTC to another wallet, those fees are not added to basis, but if you’re selling, trading, or earning it via mining, relevant fees increase the cost basis, reducing potential capital gains. Consistency is key.

When mining Bitcoin, you must include the FMV at the moment of receipt as income. Capitalizing electricity into the basis defers that portion of the income, helping balance income recognition with actual operational cost.

Tax Shield and Strategic Loss Harvesting for SaaS Offsets

A strategic benefit of combining BTC mining with other businesses, like SaaS, is the ability to use mined BTC losses to offset profits from other ventures. For example, if you mine Bitcoin and recognize a loss upon sale (after capitalizing electricity), you may be able to use that capital loss to offset income from a profitable business such as DocupletionForms.com.

Here’s how it works: after mining and recognizing taxable income based on FMV, if the value of BTC drops and you sell it, you can harvest the loss. Then, you can repurchase BTC immediately (no wash sale restriction), and even borrow against it using platforms or private agreements. This borrowed capital can fund development and marketing of your SaaS while the loss offsets your taxable profit.

Structuring this properly means pairing strong recordkeeping with legal separation between entities (e.g., holding BTC in a trust or LLC and operating SaaS from another). As long as you avoid constructive receipt of borrowed BTC, and interest paid on the borrowed amount is reasonable, you maintain clear tax separation while gaining liquidity and shielding income using mined asset losses. This approach combines crypto mining, asset-based lending, and SaaS entrepreneurship into one tightly controlled tax-optimized strategy.

 

OCR Hack! Good reminder of why not to take pictures of Seed Phrases!

Hak5 made a great YouTube Video about an OCR Hack via a Food App that stole mnemonic seed phrases. This blog is the results of a small amount of connected research on how wallet addresses are then found after seed phrases are discovered!

If hackers were able to extract 12- or 24-word mnemonic phrases from images using OCR (Optical Character Recognition) through a compromised smartphone app like a food delivery app, they would likely use multiple techniques to link those mnemonics to specific wallet addresses. Here’s how they could go about it:

1. Extracting Wallet Addresses from Mnemonics

Once they have a mnemonic phrase, they can:

  • Use standard derivation paths to generate the corresponding wallet addresses. Most wallets follow BIP39, BIP44, or other derivation standards.
  • Check transaction histories on blockchain explorers to determine if the addresses have funds or activity.

2. Linking Wallets to IPs and Devices

To connect those wallets to specific users, hackers might use several methods:

a. Monitoring IP Addresses via App Traffic

  • If the food delivery app had access to network data, it could capture outgoing IP traffic from the smartphone.
  • If the user accessed their cryptocurrency wallet from the same device, their IP address could be linked to a blockchain transaction.

b. Analyzing Browser and App Activity

  • If the victim ever accessed a blockchain explorer (e.g., Etherscan, Blockchain.com) using their phone’s browser or app, hackers could intercept and log visited wallet addresses.
  • If the delivery app had permissions to monitor clipboard data (some apps do), it might capture wallet addresses copied and pasted by the user.

c. Correlating Multiple Wallets to One User

  • If the same device was used to log into multiple wallets, hackers could group mnemonic phrases together and infer they belong to the same person.
  • If the app had access to GPS or device metadata, it could link multiple compromised wallets to a single physical location.

d. Social Engineering & Phishing

  • If the delivery app had access to email or phone numbers, they could check if the user had registered an account on crypto exchanges (e.g., Coinbase, Binance).
  • They could use this info for phishing attacks, tricking users into revealing more wallet details.

e. Cross-Referencing with Leaked Databases

  • If hackers already had access to data breaches (e.g., past email/password leaks), they could search for linked crypto exchange accounts and cross-check known wallets.

3. Draining the Wallets

Once they have the wallet addresses and mnemonic phrases, hackers could:

  • Sweep funds automatically by importing the seed phrase into a new wallet and transferring everything to their own addresses.
  • Front-run transactions by detecting pending transactions and replacing them with higher gas fees.

Defensive Measures

If you suspect such an attack is happening:

  • Never store mnemonics as images or in plaintext on a smartphone.
  • Use a hardware wallet to prevent online attacks.
  • Monitor IP logins on exchanges for unusual activity.
  • Reset wallets and transfer funds if there’s any risk of exposure.

Certain smartphone apps can access clipboard data without explicit user permission, though both iOS and Android have made efforts to restrict this due to privacy concerns. Here’s how it works:

1. Android Clipboard Access

  • Before Android 10: Any app running in the background could access clipboard contents without requiring special permissions.
  • Android 10 and later: Google restricted clipboard access, so only the currently focused app (the app in use) can access clipboard data. However:
    • Some keyboard apps (like Gboard, SwiftKey) still have clipboard access.
    • Some accessibility apps (like screen readers) may have broad permissions that allow clipboard access.
    • Apps with Accessibility Service permissions can monitor clipboard activity.
    • If a malicious app exploits a system vulnerability, it could bypass these restrictions.

2. iOS Clipboard Access

  • Before iOS 14: Any app could read clipboard data, even in the background, without user knowledge.
  • iOS 14 and later: Apple added a clipboard access notification, so users now see a popup when an app reads clipboard data. However:
    • Some third-party apps (like TikTok, LinkedIn, and Reddit) were caught reading clipboard data unnecessarily before Apple enforced these restrictions.
    • Apps with Universal Clipboard (Handoff feature) enabled (used between macOS and iOS) could read clipboard data across devices.

3. How Hackers Exploit Clipboard Access

If a malicious or compromised app can access clipboard data, it can:

  • Steal copied crypto wallet addresses (many people copy-paste their receiving addresses when making transactions).
  • Replace wallet addresses with the hacker’s address (clipboard hijacking attack).
  • Steal copied passwords or OTPs if a user copies them from a password manager or SMS.
  • Monitor frequently copied text to gather sensitive information.

4. How to Protect Yourself

  • Avoid copying seed phrases – Store them physically, not digitally.
  • Use a hardware wallet to eliminate clipboard-based risks.
  • Manually double-check wallet addresses before sending crypto (attackers can swap them).
  • Disable Universal Clipboard on Apple devices if you don’t need it.
  • Use a secure clipboard manager that clears sensitive data automatically.

In addition, if a hardware wallet’s seed phrase is compromised, the best course of action depends on how cautious you want to be. Here are the options and considerations:


1. Resetting the Seed Phrase While Keeping Wallet Addresses

Some hardware wallets allow you to reset the seed phrase but keep the same wallet addresses, but this is generally not recommended for security. Here’s why:

  • Most wallets derive private keys from a single seed phrase (BIP39/BIP44).
  • Resetting a device with a new seed phrase creates an entirely new wallet with new addresses.
  • If the hardware wallet allows “key sharding” (Shamir Backup, for example), it might let you create a recoverable structure without exposing a full mnemonic, but this doesn’t reset a compromised key.

Risk of Keeping the Same Addresses:

  • If an attacker already has the old seed phrase, they can still access past funds even if you move them.
  • If the wallet’s addresses were previously used, they are still linked to past transactions, even if accessed through a VPN or Tor.
  • VPN/Tor only masks your current location, not your past activity.

2. The Most Secure Solution (Full Reset and Tumbler)

If you want the highest level of security, follow these steps:

  1. Buy a new hardware wallet – The old one is now unsafe.
  2. Generate a brand-new seed phrase – Never reuse the old one.
  3. Use a crypto tumbler/mixer (or CoinJoin for privacy-focused coins like Bitcoin) to break the link between old and new addresses.
    • Why? Blockchains are public, and forensic analysis can track fund movements.
  4. Transfer funds to a freshly generated wallet on the new signing device.
  5. Use a VPN and/or Tor when interacting with the blockchain to avoid linking your new address to an IP.
  6. Never reuse addresses – Use a wallet that supports new addresses for each transaction (Wasabi, Samourai, or other privacy wallets).

Alternative: Passphrase-Encrypted Wallets (Hidden Wallets)

Some hardware wallets (Ledger, Trezor, Coldcard) allow you to create a hidden wallet using an extra passphrase on top of the seed phrase. This:

  • Generates a separate set of addresses from the same seed.
  • Helps if your mnemonic is compromised but the attacker doesn’t have your extra passphrase.

Caution: If the attacker has the base seed phrase, they might brute-force common passphrases.


Final Recommendation

If your seed phrase is compromised, the safest approach is:

  1. Move your funds using a new device.
  2. Use a tumbler/mixer for privacy.
  3. Generate a fresh seed phrase on a separate signing device.
  4. Use privacy tools (VPN, Tor, new addresses) going forward.

Adding an Admin Oracle Key & New Wallet Addition

We are going to  be working on an Oracle Key for the Admin to use if one or both parties to the transaction have for some reason lost their ability to use their oracle keys to release funds during a transaction at the agreement of both parties or at the order of a court with proper jurisdiction.  We will also be able to change the wallets that the crypto goes to inserting a brand new wallet if necessary.

A Mixed-Economy Idea with RetainerCrypto.Online

Save Equity for a Real Estate Purchase from your rent.

Thinking about the uses of RCO, my favorite thing came to mind, Mixed-Economy Concepts within a FREE Market!  I think it would be great to take the worry of saving for a home off of the mind of a Company’s Workers by building an Incubator Apartment Housing Project for Company Workers where the rent is paid directly by the Company via RCO and a part of the payment goes in transit to a TBD Property Escrow.  The Worker would then pull the trigger on a purchase and the in transit percentage of the funds that were paid to the rent of their apartment by their Employer would then drop into the Escrow right at the COE.

getting ready to fund this year

This project has been in the making for some time.  It is going to work very closely with the business model of ApexLawService.com and be used inside of DocupletionForms.com.  As the project gets closer and closer to launch, we have begun honing in the last finishing touches of the capabilities of RCO:

  • Oracle Keys will be possible to check for authenticity by the Arbitrator or Court dealing with a dispute before being handed over.
  • Multiple Parties can be paid by the Buyer with Separate Triggers and Separate Oracle Keys for transactions.
  • Parties will be able to be substituted for one another with the approval of main parties.

an interesting set of information

The Short Link to this page is JamesPolk.net/project.

Many people question what our banking system is in the US (I plan on writing a fact check article about the contents of this YouTube video).  For this reason we are looking at making it possible to connect different banks from different countries to our wallet.  We are not sure how it will work itself out.

Many people question what our social security numbers etc. are, but we are not addressing that, but simply included this link to the Cestui Que Trust Law Review of 1917 by Princeton.

This is the list of the capabilities of RCO.

For good measure, a full text copy of the Federalist Papers.

A full text reading of the Constitution of the United States (not for).

Oh and while I’m at it, the Book of Concord & a video by LCMS Pastor Bryan Wolfmueller about the difference between decisional theology and German Lutheran Theology.

This is an interesting video also about the willful subversion of the US Constitution.

Nothing about the content linked out to on this page is because of any intent to subvert US Sovereignty, but simply is placed here because of concurrent interconnected philosophical concepts that undergird the crypto utility token industry.

Regards,

James F. Polk – myWhy.JamesPolk.net

Founder of Centinel Trust & Apex Law Service

 

P.S.  For good measure I included a copy of Former President Barack Obama’s Anti-Disinformation Czar Cass Sunstein’s paper: Conspiracy Theories.  Just for fun I saved a copy on my server so they can’t erase it from history, lol.  You can find it at JamesPolk.net/conspiracy-theories.

RCO may have an application in the Cannabis Industry.

It is possible that people can use an RCO Crypto Wallet to transact different Cannabis Industry Transactions.  There have been a whole ton of different solutions for transaction needs in the Cannabis Industry that have been created over the last few years, and it is always possible that people may want to enter into a set of ongoing transactions with a vendor, a retailer, a shipper, a tester, a manufacturer, etc. using RCO.

Problems Solved by RCO

  1. Transactions in the control of the Client.
  2. Transaction funds not under the control of anybody other than the Client.
  3. Abandoned Client will be able to find a new Attorney much more quickly.
  4. Attorneys will be able to gain the trust of their clients by offering RCO transactions.
  5. No Escrow fee.
  6. No IOLTA (though RCO might be duty bound to pay local Bar Associations).
  7. RCO will be able to be synchronized with any set of Agent/Client Professional Services Industries: Attorney, Paralegal, Realtor, Real Estate Agent, Escrow, Tax, the list goes on.
  8. Disputed Disbursements are locked and neither party can abscond with the funds.
  9. It will induce Service Professionals to perform and properly bill and document work so that they will be paid their disbursement.
  10. It will give the Service Professional the security of knowing the funds are committed to the transaction and they simply have to perform.
  11. Predatory Clients will not be able to be predatory.  Service providers will only do the amount of work they have been paid disbursements to do and/or are about to be paid to do.