Cryptocurrency mining is becoming more popular as the use of crypto is on the rise. This article will outline some of the most important things for crypto miners to know with regards to taxes and how your mining transactions should appear in TaxBit.
Sections in the article include:
- 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 at the market value of the coin at the time it is received.
To report your annual mining income, TaxBit provides you with the “Income Report.” You can download that from your My Taxes page and take it directly to a filing service (like 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 is likely considered to be a hobby.
If the IRS considers your mining activity to be a business, you can reduce your tax liability with deductions and credits. 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, then any deductions are reported on Schedule A as itemized deductions. This may not necessarily be a bad thing because you are not required to pay the 15% self-employment tax if operating as a hobby as opposed to a business.
The negative here is that 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 are not allowed to deduct losses from your mining activity. It is generally easier to qualify for deductions as a business. however, 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?
How to add your mining data to TaxBit
Most crypto mining income is deposited directly in a specific wallet. If this is the case for you, you may be able to link your wallet if it is on one of the seven supported blockchains, using our “Add Wallet” feature. Useful links:
If you have a wallet on which you receive mining income, and if that wallet is not on a supported blockchain able to be linked, 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 as a 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 is unable to help account for your mining expenses and deductions. You will need to work with a CPA or other tax expert to ensure that you are reporting those things accurately
Still have questions? Send us an email at firstname.lastname@example.org or chat with us using our live chat feature, and we'd be happy to help!