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How is Cryptocurrency Mining Taxed?

In the US, the IRS originally released cryptocurrency guidance in 2014 and followed it up on October 2019 with additional cryptocurrency tax guidance.

Overview

The way cryptocurrency mining income is taxed depends on whether you are a hobbyist miner or a self-employed (business) miner. Here are some of the measures that the IRS provides for determining which camp you are in:

  • The manner in which the taxpayer carries on the activity
  • The expertise of the taxpayer or their advisors
  • The time and effort expended by the taxpayer in carrying on the activity
  • Expectation that assets used in activity may appreciate in value
  • The success of the taxpayer in carrying on other similar or dissimilar activities
  • The taxpayer’s history of income or losses with respect to the activity
  • The amount of occasional profits, if any, which are earned

As you can see, there is some amount of subjectivity to the classification. For example, if you operate a mining farm full-time you are more likely to be categorized as a business. If you are randomly doing some mining on an old computer, you are probably a hobbyist. In both cases you will need to report your mined coins as taxable ordinary income and your basis will be the fair market value at the time you receive the coins.

Hobbyists

  • Income will go on line 21 (other income) of your Form 1040 Schedule 1 (Additional Income and Adjustments to Income)
  • Expenses directly associated with mining will go on a Schedule A (Itemized Deductions), miscellaneous subject to 2% of AGI limitation (only applies to 2017 and prior years)

Business Miners

  • Income and expenses both go on a Schedule C form (Profit or Loss from Business)
  • Your income is subject to the 15.3% self-employment tax
  • You can deduct business related expenses to offset mining income

CoinTracker allows you to mark any received coins (from the Transactions page) as "Mined" so you can see the amount of mining income you have (on the Tax page), in addition to the capital gains which are already tracked separately.

"Mined" transaction shown in the CoinTracker user interface.
Example CoinTracker transaction marked as "Mined"

Note: the rules are different in different countries such as Canada and the United Kingdom

Questions or comments? Message us @cointracker_io


Disclaimer: this post is informational only and is not meant as tax advice. For tax advice please speak with a tax professional.

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