April 6, 2022

How to Report Crypto Mining Taxes

Written by Mark Kang, CPA Updated April 6, 2022

1. What Are Crypto Mining Taxes?

Crypto mining refers to generating blocks in a blockchain by verifying certain transactions and receiving the newly generated crypto as rewards or compensation for the work. The IRS classifies this as earned income, meaning crypto mining taxes are simply ordinary income taxes. 

Miners report the fair market value (FMV) of the new crypto at the time it was generated as their earned income, which is taxed from 10% to 37%, depending on gross income and filing status, as shown below. 

i.e.) Suppose you mined BTC at home and on April 22, earned 0.041 BTC, worth $650 at the time. Your mining income of $650 will be taxed as ordinary income.

2021 Short term capital gains tax brackets

 

2. Crypto Mining: Hobby vs. Business

You use different forms to report crypto mining income depending on whether you mined for hobby or business. Since profits can be reported as business income only when mining for business by IRS standards, you’ll need proof of mining for business, such as: 

  • intentions and expectations to make a profit 
  • dependency on your mining income 
  • plans to keep generating income from business assets (like graphics cards, etc)
  • history of making a profit with similar activities 

 

3. How to Report Crypto Mining Taxes

If the IRS deems your mining activity as a hobby, the income generated is considered hobby income, which is reported on Schedule 1 as Other income

For business income, you report the FMV of the cryptocurrency that you mined on Schedule C and also pay a 15.3% self-employment tax. You can also deduct some business expenses, as well as any capital losses from prior years, when you file your taxes for this year. 

Reporting crypto mining taxes on Schedule 1
Reporting crypto mining taxes on Schedule C

 

4. How to Minimize Crypto Mining Taxes

It can be quite expensive to mine crypto. You need extensive computational power, internet, and electricity, as well as a location. The best way to reduce your crypto mining taxes is deducting as much of these expenses as possible. 

Though there isn’t much you can do to save on taxes when reporting your mining rewards as a hobby, you can reduce taxes as a business by proving and deducting the expenses below:

  • Depreciation: The computer you might have custom-built for mining is a piece of equipment that qualifies for either a single depreciation deduction or annual deductions over 3 to 5 years with the modified accelerated cost recovery system (MACRS).
  • Utilities: Install a monitor to gauge electricity usage due to mining activity and pay a separate bill. 
  • Home office: If you mine from home, the home office deduction might apply to you. 
  • Rent: If you rent a place specifically for your mining equipment, you can deduct rental expenses.

More info: Part 1. Section 162—Trade or Business Expense

 

5. Tax Tips for a Successful Crypto Mining Year

  • If you mined an expensive crypto like Bitcoin, it’s likely that your gross income suddenly jumped. So we recommend paying 100% of your previous year’s tax as an estimated tax. Otherwise, you’ll pay a fine if you owe more than $1,000 in taxes on April 15. 
  • The IRS might audit you about whether you mined for hobby or for business, so make sure you have all the supporting documents in place.

 

6. Keep Records to Calculate Crypto Mining Taxes 

Unlike most types of earned income, miners don’t have an employer to issue a W-2 for gross income. Even mining companies, where several people mine together and share the mining rewards, do not issue a Form 1099 to miners. Regardless, mining income must be calculated properly and reported on your taxes, so you need detailed records on each mining reward, including the mined dates and the FMV on those dates.

Need a crypto mining tax calculator? Check out Cointelli’s crypto tax software. We’ll help you gather all the data you need to file your crypto mining taxes.  

 

Got any crypto tax questions? Ask us on Twitter! Our co-founder & crypto tax expert Daniel @Cointelli_Dan will answer you directly!

 

DISCLAIMER: This post is for informational purposes only and should not be interpreted or relied upon as a substitute for the advice of financial, legal, or tax professionals. This content also only addresses U.S. federal income tax consequences for U.S. citizens and residents and does not address tax consequences that may be relevant to a particular person subject to special rules, such as dealers or traders. You should consult with your own financial, legal, or tax professionals to report and file your crypto taxes or make decisions on your particular circumstances. The laws, regulations, or interpretation of the existing laws could change, which may adversely affect either prospectively or retroactively. The content of this post is subject to changes.
About the Author
Mark Kang, CPA
Co-founder of Cointelli
Mark Kang is a CPA with a Ph.D. in Physics. He helped build Cointelli’s foolproof formula for accurate crypto tax reporting. Passionate about crypto tax topics, Mark is here to share the knowledge.

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Converting Crypto: Taxable or Not?
About the Author
Mark Kang, CPA
Co-founder of Cointelli
Mark Kang is a CPA with a Ph.D. in Physics. He helped build Cointelli’s foolproof formula for accurate crypto tax reporting. Passionate about crypto tax topics, Mark is here to share the knowledge.
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