Crypto Mining Tax: The Ultimate US Guide for 2024

17 Jan, 2024 · 21 min read

The crypto mining tax can range significantly in the US since crypto mining is taxed as income, with rates depending on your total income during the tax year.

Let’s cover how crypto mining is taxed in the US, how to report crypto mining rewards, taxes for node operators, how to reduce crypto mining taxes, and much more!

Key Takeaways about crypto mining tax
  • Crypto mining in the US is subject to income tax;

  • You have to report the Fair Market Value (in USD) of the crypto mining rewards you received at the time you received them;

  • You need to report your crypto mining rewards in your Individual Income Tax return (Form 1040);

  • Crypto tax software like CoinTracking can automatically determine your crypto mining income and generate tax reports.

What is crypto mining?

Crypto mining is the process of validating crypto transactions on the blockchain by miners who perform the necessary computing work to win the bid for becoming the validator who will then win mining rewards resulting from the creation of new units of a particular cryptocurrency.

Crypto mining was introduced with Bitcoin, using a Proof-of-Work (PoW) protocol, where miners receive new units of BTC from validating transactions on the Bitcoin blockchain.

Proof of Work – PoW

Proof of Work (PoW) is a protocol originating new cryptocurrency units with miners solving a complex math problem to verify transactions of a particular blockchain network and proving their work.

What are Mining Rewards?

Mining rewards are the compensation that miners receive for performing the necessary work to confirm transactions on a PoW-based network like Bitcoin. 

How is crypto mining taxed in the US?

In the US, receiving Bitcoin or other cryptocurrencies from mining is a taxable event, subject to income taxes if you’re an individual miner or corporate taxes if you’re a corporation.

If you’re a crypto miner operating as a business, you’d need to recognize the coins from mining as income at the time of your receipt. You will need to pay income tax while filing your personal tax return if your business is a disregarded or passthrough entity. If you operate your mining business under a corporation structure, your company will need to pay corporate income tax for net profits from the mining operation. 

If you are doing crypto mining as a hobby, you will also need to report your mining rewards as income in your tax return.

Mining Rewards as Taxable Income

According to the IRS, mining Bitcoin or another cryptocurrency is a taxable event, where you’d have to recognize the Fair Market Value (in USD) of the mining rewards at the time you receive them. 

You’ll need to report your mining rewards as taxable income in your US Individual Income Tax Return (Form 1040).

Capital Gains on Disposal

Selling your mined cryptocurrency after you receive it is a taxable event in the US, subject to capital gains taxes.

Your capital gains will be the difference between the sales proceeds and the cost basis (the FMV of the mining rewards when you initially received them). 

Quarterly Payments

If you earn taxable income, you would have to file a tax return and you may need to pay quarterly taxes every 15th of April, June, September, and January.

This is a good way to spread your income taxes over the year instead of paying a huge lump sum since usually there is no tax withholding when you receive mining rewards during the year.

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How to calculate mining taxes?

To calculate mining taxes, you’d need to determine their Fair Market Value (in USD) every time when you receive a new batch of mining rewards. 

Since you can receive many batches of different cryptocurrencies throughout the year, it quickly becomes difficult to track these FMVs.

The easiest way to calculate mining taxes is to import your transactions to a crypto tax software, which will automatically track your crypto mining income.

Examples

Scenario of a miner who needs to pay income tax 

  • In May 2021, John started to mine Bitcoin as a hobby (not as a business);
  • He’s spending, on average, $300 in electricity costs per month;
  • In June 2021, John received his first 0.05 BTC as mining rewards;
  • In June 2021, 1 BTC was worth $30K;
  • In June 2021, John needed to recognize the FMV of those rewards: $1,500 (0.05 BTC * $30K) as income;
  • John will have to report $1,500 on his income tax return for 2021;
  • His income taxes will depend on his total income level for the year;
  • Unfortunately, John cannot deduct his electricity costs because hobby expenses are not deductible.

Scenario of a miner who needs to pay capital gains tax

Let’s continue with the same example as above:

  • In December 2021, Bitcoin reached $69K, and John wanted to sell his 0.05 BTC rewards;
  • His 0.05 BTC was worth $3,450 in December 2021;
  • His initial cost basis (FMV) was $1,500;
  • John had to report a capital gain of $1,950 ($3,450-$1,500);
  • John held his BTC for less than 12 months, leading to short-term capital gains taxes, ranging from 10% to 37%;
  • Let’s assume his tax rate* was 35%;
  • John needed to pay $682.5 in capital gains tax in 2022 (when John filed his 2021 tax return).

*John’s final tax rate depends on his situation (e.g., filing status) and other factors. This rate is used for simulation purposes only.

How are nodes taxed?

Nodes are taxed similarly to crypto mining, as you’re receiving passive income from running crypto nodes.

Every time you receive new crypto rewards from running nodes, you’d need to determine their Fair Market Value (in USD) at the time you received them.

You need to report that node income in your income tax return alongside your total income for the year.

Is crypto mining taxed twice?

Crypto mining can be taxed “twice” because you’re taxed at the income level when you receive mining rewards and then taxed at the capital gains level when you sell them.

Firstly, you need to recognize the Fair Market Value (in USD) of the mining rewards when you receive them. 

Secondly, if you sell your mining rewards, you’d be taxed at the capital gains level based on the difference between the sales proceeds and the initial cost basis (FMV of the mining rewards). 

The mining income you recognized is never taxed twice because you can deduct it from your sale of the mining reward as cost basis for calculating your capital gain.

You only have to tax the increase in value since you received the mining reward. In case of a decrease in value, you can reduce your crypto gains with that loss.

How to report crypto mining on taxes

Crypto mining is taxed in the US, meaning that you have to report all the income you had from mining each tax year by using the correct tax forms as an investor. If you’re an incorporated business, your mining income will be taxed at the corporate level, with different filing requirements. 

Crypto mining as a hobby vs as a business

If you mine crypto as a hobby, every time you receive new coins from mining, you’d need to determine their Fair Market Value (in USD) when you received them.

You have to report all your crypto income on your Form 1040, from crypto mining rewards to node income, staking rewards, crypto interest, NFT sales from your creations, and more.

If you’re a crypto mining business, you’d need to report your rewards as business income and you can deduct your mining related expenses.

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Tax forms for crypto mining in the US

As a mining hobbyist, you should report your rewards from crypto mining as income on Schedule 1 of your US Individual Income Tax Return (Form 1040).

If you are mining crypto as a sole proprietor or single-member LLC, you’d need to report that as business income on Schedule C.

Strategies to Minimize Crypto Mining Taxes

You minimize crypto mining taxes by:

Tax deductions for crypto miners

Crypto miners operating as a business have a lot of opportunities to reduce their taxes from crypto mining income.

However, as a general rule under the current tax laws, hobbyist miners don’t have the same deducting opportunities. However, they can still reduce their capital gains taxes with other strategies. 

Electricity

You can deduct your electricity costs from crypto mining if you’re mining as a business and earning income from it. The same is not true if you’re a hobbyist.

Equipment

You can deduct your upfront costs for equipment (e.g., mining rigs) if you are crypto mining as a business. If you’re mining as a hobbyist, this deduction is not allowed.

Repairs & maintenance

You can also deduct ongoing costs for repairs/maintenance from your mining machines if you’re mining as a business (not possible if you mine as a hobby).

Rent

As a business, you can deduct regular costs as an office or building lease, lowering your tax bill from your crypto mining income.

Losses

You can use your capital losses to offset your capital gains. In addition, you can deduct up to $3,000 in net losses each year (valid for 2023) to offset your ordinary income for the year, reducing your total tax bill by crypto tax loss harvesting.

MAKING CRYPTO TAXES EASY
Reporting Crypto Mining Rewards in Tax Returns

Automatically track crypto income from mining with CoinTracking and generate precise tax reports effortlessly.

What happens if I don’t rexport my cryptocurrency mining rewards on my taxes?

If you fail to report your crypto taxes, from your capital gains to crypto mining rewards, you’ll likely face penalties from the IRS, from late-filing fees to harsher consequences.

Penalties for Non-Compliance

If the IRS has proof that you committed tax fraud or evasion, there could be severe consequences. 

First, you have to pay your tax burden. Secondly, you have to pay interest on those taxes and late fees. In severe cases, there can be criminal charges, including jail time. 

The punishment depends on the circumstances of every individual case and can vary from case to case.

Proposed Excise Tax

Recently, a new proposal emerged to impose a 30% tax on the electricity costs of miners on top of the usual crypto income taxes.

Later, it was confirmed that this proposal was abandoned, meaning crypto mining taxes will remain the same.

Taxation of Crypto Mining in Other Countries

Let’s cover how crypto mining is taxed across countries, from Canada to Australia, Germany, and the UK.

Canada

Canada taxes cryptocurrency mining at an income and business level, depending on your activity type. Check our Canada crypto taxes guide for more information.

Australia

In Australia, you’ll pay taxes over your new cryptocurrency mining rewards when you sell them, subject to capital gains taxes. Discover how Australia taxes crypto.

UK

In the UK, if you earn coins from crypto mining, you’d have a taxable event, subject to income taxes.

According to the HMRC, you have to determine “the pound sterling value (at the time of receipt) of any tokens awarded,” taxed as “income (miscellaneous income).” Learn more about UK crypto taxes.

Germany

In Germany, there is a fine line between the definition of private and commercial mining. However, private mining rewards are taxed as income. 

Discover more in our crypto tax guide for Germany.

FAQ about Crypto
Mining Taxes in the US

Questions and Answers on Crypto Portfolio Tracking & Crypto Taxes

If you are not yet familiar with CoinTracking, these frequently asked questions are an ideal starting point for using our expertise and clarifying important issues.

Do you have to pay taxes on mining crypto if you don’t sell?2023-10-06T11:41:35+01:00

Yes, if you have to determine the Fair Market Value (in USD) of all mining rewards you receive when you receive them and pay income taxes.

Can the IRS track crypto mining?2023-10-06T11:40:35+01:00

The IRS and other tax authorities have several resources, from thousands of agents to forensics tools, to track people’s crypto holdings, including income from mining.

Do you have to pay quarterly taxes on crypto mining?2023-11-06T10:11:58+01:00

You can pay quarterly taxes on crypto mining income instead of the entire tax bill at the end of the year in a pay-as-you-go system.

How do you avoid taxes on crypto mining?2023-11-06T10:10:28+01:00

You can reduce taxes on crypto mining by setting up a business where you can deduct costs from your total mining proceeds or lower your capital gains taxes by crypto tax loss harvesting.

Do you have to pay taxes on mining crypto?2023-10-06T11:30:25+01:00

Yes, you have to pay income taxes over your crypto mining rewards in the US, while if you later sell them, you’d be subject to capital gains taxes.

Conclusion

Yes, you have to pay taxes on mining rewards in the US, whether you are doing mining as a hobby or a business. Your crypto mining tax rate will depend on the nature of your activity, from corporate taxes to income taxes.

Fortunately, you can use crypto tax software like CoinTracking to import your mining transactions and determine the taxes you’d need to pay over your new coins.

Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.

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Moritz Nold: Crypto Tax Manager
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Moritz
Crypto Tax Manager
Tax Expert, Webinar-Host, Content Creator, Crypto Enthusiast and Investor. Interested in everything regarding the crypto space.
Tax Expert, Webinar-Host, Content Creator, Crypto Enthusiast and Investor. Interested in everything regarding the crypto space.

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