How to File Taxes on Cryptocurrency Mining in the U.S.

Key Takeaways

• Crypto mining rewards are seen as ordinary income for tax purposes and are taxable at receipt, not when funds are sold.
• Those engaging in mining activities on a business scale can claim deduction on expenses.
• Cryptocurrency miners also need to consider filing capital gains taxes after selling their coins.

If you’re filing taxes as a crypto-miner in the US, you need to be aware of the IRS guidelines on mining income.

IRS Views Mining Rewards as Income

The Internal Revenue Service (IRS) first published its guidance on taxing cryptocurrencies in 2019 and clarified how mining should be reported for taxes. The IRS views mining profits as income for tax purposes, and as with any income, crypto miners are required to pay taxes.

Cryptocurrency miners would do well to pay attention to the tax implications of their operations, as failure to comply could result in action from the IRS.

A key point to note is that mining rewards are taxable at their receipt, not when sold. Every time a crypto-miner receives coins in their wallet, the market price is used as a cost basis for reporting gross income. Miners will report gross income on Form 1040, the official form for filing individual income tax returns in the U.S.

“When a taxpayer successfully mines virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income,” stated the IRS. 

According to crypto tax software TaxBit, commercial miners account for most mined cryptocurrencies in the U.S.

Commercial Miners vs. Part-Time Miners

Those engaging in mining activities on a business scale will need to report their income and expenses on Schedule C (Form 1040). The mining business will be allowed to claim deductions on expenses.

According to the IRS, miners can deduct expenses such as hardware, equipment, electricity, internet, and other business costs against mining income.  

Another critical point to remember is that self proprietors have to pay a 15.3% self-employment tax by attaching Schedule S.E. with Form 1040, according to CoinTracker.

Then there are miners whose primary income does not rely on mining cryptocurrencies. Such ‘non-business’ mining income will have to be reported as additional income by taxpayers on Schedule 1 (Form 1040). Non-commercial miners cannot deduct expenses when paying taxes.

Mining Taxes and Capital Gains

Every time miners sell their crypto for a profit, capital gains tax needs to be considered as well as income tax.

The IRS treats cryptocurrencies as property, and their sale generates a capital tax event.

To calculate and report capital gains and losses on the sale of cryptocurrencies, taxpayers will need to file IRS Form 8949, and the subtotals carry over to Schedule D (Form 1040).

Each sale of mined cryptocurrency has to be reported on the tax form for determining the correct capital gains and capital losses.

Record All Transactions

Considering all of the above factors, calculating the final taxes can be a daunting task. Miners can use tax software like TaxBit to calculate what they owe when tax season comes.

To be able to calculate taxes, solid record-keeping is a good practice. Miners should properly record transactional data including the time, market price, and amount of cryptocurrency sold. This practice is also essential when it comes to file taxes accurately to claim deductions.

Disclosure: The author did not hold crypto mentioned in this article at the time of press. 

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