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Recap HomeIRS Virtual CurrenciesUK Tax GuideSA Tax Guide
  • Cryptocurrency Tax Guide for US Individuals
    • Virtual Currency & Cryptocurrency
    • Who are Recap?
  • CRYPTOCURRENCY TAX
    • Do I Need to Pay Tax on my Crypto?
    • Which Taxes Apply?
      • Capital Gains Tax (CGT)
      • Income Tax
      • Non-Taxable Transactions
    • How Much Tax Will I Pay?
    • Capital Gains Tax
      • Calculating the Capital Gains and Losses
      • Cost Basis Methods
      • Disposal proceeds
        • Non Taxable Events
        • Taxable Events
        • Donating cryptocurrency to a charitable organization
        • Gifting cryptocurrency to another person
    • Income Tax
      • Receiving cryptocurrency from mining
      • Receiving cryptocurrency rewards
      • Forks
      • Airdrops
      • Tax on Tokenswaps and Mainnetswaps
    • Deductibles and Reducing Capital Gains
  • TRANSACTION TYPES
    • 💷Selling Crypto for Fiat
    • 🛍️Purchases using Crypto
    • 🔄Exchanging one crypto for a different crypto
    • 🎗️Donations to Qualified Charities
    • 🎁Gifts
    • 🎈Airdrops
    • 🤝Staking
    • 💸Transfers
    • 🍴Forks
    • ⛏️Mining
    • 👛Employment income
    • 🚨Lost & Stolen Crypto
    • 💧Liquidity Pools
    • 🔮Cryptoasset derivatives (CFDs, Futures and Margin Trading)
    • 💼Crypto Loans
    • 💎Lending Rewards
    • 🪞Reflections Rewards
    • 👥Referral Income
    • 💳Cashback
    • 🎨NFTs (Non Fungible Tokens)
    • 🎮Play-to-earn gaming NFTs
  • Record Keeping
  • Reporting Income and Gains to the IRS and Paying the Tax
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  • Mining – investment or business miner?
  • Cryptocurrency Mining Tax for Investment or Hobby
  • Cryptocurrency Mining Tax for Businesses

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  1. CRYPTOCURRENCY TAX
  2. Income Tax

Receiving cryptocurrency from mining

Mining – investment or business miner?

Tax and expenses are treated differently for those mining as an investment or hobby, and those who mine for business, so you first need to determine your activity. As a general rule, whether you are mining as a hobby or as a business, any crypto you receive will be considered income. However, when you mine for business, you may benefit from certain deductions.

While IRS lists the following factors for determining whether activity (general not just crypto) is a business or a hobby, they add that all the following facts and circumstances should be considered:

  • If the activity is carried out in a business-like manner with accurate records

  • Whether the amount of time and effort put into the activity shows intent to make it profitable

  • If you are dependent on the income for your livelihood

  • Whether any losses are out of your control (or normal in a start-up business)

  • Whether you change operating methods to improve profitability

  • Whether you (or your advisors) have knowledge to continue the activity as a successful business

  • Whether you have historical success (profit) in similar activities in the past

  • Whether your activity makes profit and how much

  • Whether there is expectation of future profit from appreciating assets used in the activity

Consult with a tax professional to determine if your mining activity is sufficient for a business or should be treated as a hobby.

Cryptocurrency Mining Tax for Investment or Hobby

Hobbyists and investors should declare cryptocurrency received from mining as additional income on line 21 (other income) of Form 1040 Schedule 1. Unfortunately, under current tax law hobbyists and investors cannot claim any expenses to reduce their tax liability.

Cryptocurrency Mining Tax for Businesses

  • If determined to be a business, both income and expenses should be reported for tax on Schedule C - Profit or Loss from Business or on applicable Business Returns (form 1065, 1120 or 1120S).

  • Income from a cryptocurrency mining business is subject to the 15.3% self-employment tax but business miners are eligible for a wider range of business-related expenses that can be deducted from mining income. Examples of expenses for business miners include electricity, computer equipment, rent or home office costs, supplies and software.

We recommend that you consult your accountant or tax attorney for advice related to how you can classify your mining activities and determine which deductions are proper for you.

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Last updated 3 years ago

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