Cryptocurrency mining is becoming more popular as the use of crypto rises. This article outlines some of the most important considerations crypto miners need to know in regards to taxes and how mining transactions should appear in TaxBit.
- How is mined cryptocurrency taxed?
- Is mining considered a business or hobby?
- How to add your mining data to TaxBit
How is mined cryptocurrency taxed?
Mined assets are treated as income. Miners must report income from every coin they receive in a given tax year. The transactions need to be reported at the market value of the coin at the time it was received.
To report your annual mining income, TaxBit provides you with the Income Report. You can download the Income Report from your My Taxes page, and take it directly to a filing service, such as TurboTax, or to your accountant.
Additionally, when you trade or sell mined crypto, you realize a capital gain or loss that needs to be reported on IRS Form 8949.
Is mining considered a business or hobby?
You’ll need to determine if your mining constitutes a business or hobby under IRS guidelines. To qualify as a business, the activity must be done on a continuing, consistent basis, with the purpose of profit generation. If your mining activity is sporadic or insubstantial, then it’s likely to be considered a hobby.
Mining as a business
If the IRS considers your mining activity as a business, you can reduce your tax liability with deductions and credits. It’s generally easier to qualify for deductions as a business, but the self-employment tax may reduce the benefit.
The IRS looks at numerous factors to decide if your mining is a business, including:
- Do you put in the necessary time and effort to turn a profit?
- Have you made a profit in this activity in the past, or can you expect to make one in the future?
- Do you have the knowledge to succeed in this field?
- Do you depend on income from this activity?
- Are your losses beyond your control?
Mining as a hobby
If the IRS sees your mining activity as a hobby, you still may be able to deduct some expenses, but only if they exceed 2% of your gross income.
If your mining is a hobby, any deductions are reported on Schedule A as itemized deductions, and you’re not required to pay the 15% self-employment tax.
However, again, itemized deductions are limited to expenses that exceed 2% of your adjusted gross income. Itemized deductions don’t allow for certain home office and start-up costs, and you’re not allowed to deduct losses from your mining activity.
How to add your mining data to TaxBit
Most crypto mining income is deposited directly in to a specific wallet. You may be able to link your wallet, if it’s on one of TaxBit’s seven supported blockchains, using the Add Wallet feature. Useful links:
If your wallet isn’t on a supported blockchain, you can send us a CSV with those transactions. If you are unable to download a CSV file directly from your wallet, you can create a custom CSV to record that income using this article for reference.
No matter how you need to get those transactions added to your TaxBit account, the Support Team is here to help.
Note: At this time, TaxBit doesn’t offer support or advice in regard to mining expenses or deductions. Please work with a CPA or other tax expert to ensure you’re reporting those transactions accurately.
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