Crypto Mining Taxes Guide 2024
If you’re mining crypto like Bitcoin or Dogecoin, the IRS wants its cut. We’re covering everything you need to know about crypto mining taxes in our guide.
Crypto mining rewards are taxed as income upon receipt in the US (and most other countries!), meaning you’ll pay Income Tax on crypto mining rewards.
You may also pay Capital Gains Tax if you later sell, trade, or spend your crypto mining rewards and make a gain.
There are dfiferent tax implications for hobby miners and those mining crypto as a business. Businesses may be eligible for tax deductions.
What is crypto mining?
Cryptocurrency mining is the process by which Bitcoin and other Proof of Work cryptocurrencies are created and how transactions on a given blockchain are verified.
It involves networks of computers solving mathematical puzzles. You can learn more in our complete guide to crypto mining.
In exchange for their efforts, crypto miners receive new coins or tokens as a reward. But these mining rewards come with a tax bill.
How is crypto mining taxed?
Crypto mining may create two different taxable scenarios:
Income Tax when you receive your mining rewards.
Capital Gains Tax if you dispose of your mining rewards and make a gain.
Is crypto mining taxed twice?
Unfortunately, yes. Crypto mining may result in two different taxable events. We’ll take a look at both.
Income Tax on crypto mining
When you receive your mining rewards, the IRS is clear that this is viewed as income and subject to Income Tax. You’ll pay your regular Income Tax rate based on the fair market value of your mining rewards on the day you received them.
The fair market value of your mining rewards will also be your cost basis. This is important to remember because if you later dispose of your crypto mining rewards, you’ll need to know your cost basis to calculate your gain or loss.
Capital Gains Tax on crypto mining
If you sell, swap, or spend your crypto mining rewards at a later point, you may need to pay Capital Gains Tax as a result of this transaction.
To calculate your capital gain or loss, subtract the cost basis of your crypto mining rewards (fair market value on the day you received them), from the sale price (or fair market value on the day you otherwise disposed of them). If you have a gain, you’ll pay tax on that gain. If you have a loss, you can use that loss to lower your tax bill.
How much tax on crypto mining rewards?
It all depends on how much you earn. You’ll pay Income Tax of up to 37% upon receipt of mining rewards, and Capital Gains Tax of up to 20% on any gain from disposing of mining rewards. Learn more in our crypto tax rates guide.
Will there be a 30% tax on crypto mining?
Not long ago, the Treasury Department proposed a potential 30% excise tax on crypto mining businesses. At the time of writing though, it’s unclear whether this would pass Congress and become law.
Hobby mining vs. mining crypto as a business
If you are self-employed and your mining activities constitute a trade or business - your income from crypto mining may also be subject to Self-Employment Tax to cover social security and Medicare contributions depending on the legal structure you choose for your mining business.
Many US crypto miners choose to establish their mining operation as a business by incorporating it or setting up a sole proprietorship so they can deduct business expenses related to mining.
Crypto mining tax deductions
Once a mining operation is established as a business - you can deduct your mining costs as business expenses. Most crypto miners know running a successful mining operation is expensive. But treating it as a business can write off some of these expenses from your tax bill.
Some of the business mining expenses you can include are:
Equipment expenses like a mining rig.
Costs of repairs to equipment.
Office space, if applicable, or a home office deduction.
You should always consult with a qualified accountant for advice on the best way to approach your mining activities from a tax perspective.
How do I report crypto mining income on taxes?
Your crypto mining income needs to be reported in your annual tax return by April 15th each year. How you report your crypto mining income on your tax return depends on whether you’re a hobby miner or mining crypto as a business.
For hobby miners, you report your income from mining on Form Schedule 1 (1040), line 8 as other income. You’ll report any capital gains from selling, swapping, or spending mined coins on Form Schedule D (1040) and Form 8949.
If you’re self-employed or running a mining business, you’ll report your mining income on Form Schedule C (1040).
Read next: US Crypto Tax Guide
Do I have to pay quarterly taxes on crypto mining?
It depends on your circumstances. The IRS requires taxpayers to pay quarterly taxes when:
You expect to owe more than $1,000 in tax after subtracting tax credits and withholding.
You expect that your withholding and refundable credits will cover less than 90% of this financial year’s tax liability or 100% of next year’s tax liability.
If you meet both of these conditions, you’ll need to pay quarterly taxes to the IRS and will need to regulalry keep track of your tax liability throughout the financial year.
Read next: Do I have to have quarterly taxes on crypto?
What happens if I don’t report my cryptocurrency mining rewards on my taxes?
Failing to report your crypto mining income or any gains from disposing of mining rewards, is tax evasion and comes with penalties, fines, and even potential prison time. The IRS is focused on crypto tax evaders and increasing audits. In other words, it’s not worth the risk.
Read next: What happens if I don’t report my crypto?
How do I avoid taxes on crypto mining?
You don’t without penalty. But there are some steps you can take to legally reduce your crypto mining tax bill, including:
Setting up a crypto business for your crypto mining activities so you can write off mining expenses.
Seizing tax loss harvesting opportunities to minimize capital gains throughout the financial year.
Using crypto tax software to track your tax liability throughout the year and test the most efficient cost basis method to minimize your tax liability.
Crypto mining tax software
Crypto mining tax software like Koinly can help you manage your tax liability from mining easily. You can sync popular PoW blockchains like BTC, BCH, LTC, DOGE, and more with Koinly to automatically import all your mining transactions.
Once your crypto mining transactions are imported, Koinly will automatically include them in your tax summary. If you live in a location where mining is treated as income and subject to Income Tax, just head to the settings page and use the “treat mining as income” toggle. When you set up your Koinly account, these settings will be automatically set to the recommended tax treatment for your country based on current guidance. This will then be included as income in your tax summary and tax reports.
If your mining transactions aren’t automatically tagged from the data you import - don’t worry. You can also tag deposits as “mining” in Koinly manually.
After this, it’s as simple as downloading the tax report you need from Koinly and filing it with your tax office or chosen tax app. We support a range of different tax reports for crypto investors worldwide.
How is crypto mining taxed in other countries?
Most tax offices crypto mining in a similar way to the IRS, although there are sometimes exceptions for hobby miners. You can find out more about how crypto mining is taxed in your country in our guides, but in brief:
UK: HMRC is clear that crypto miners in the UK will pay Income Tax upon receipt of mining rewards, and Capital Gains Tax on any gain if they later sell, swap, spend, or gift (excluding to spouse) mining rewards. There may be different tax treatments - including deductions - if you’re mining as a business. Learn more in our UK Crypto Tax Guide.
Australia: The ATO taxes hobby miners and crypto mining businesses differently. Hobby miners don’t pay Income Tax upon receipt of mining rewards, only Capital Gains Tax on any gain as a result of disposing of mining rewards by selling, swapping, spending, or gifting them. Business miners will pay Income Tax and Capital Gains Tax on mining rewards. Learn more in our Australian Crypto Tax Guide.
Canada: The CRA taxes hobby miners and those making business income differently. Hobby miners do not pay Income Tax upon receipt of mining rewards, but will pay Capital Gains Tax on half of any gain from disposing of mining rewards by selling, swapping, spending, or gifting them. Those with business income from crypto mining will pay Income Tax upon receipt of mining rewards. Learn more in our Canada Crypto Tax Guide.
Your frequently asked questions...
How are nodes taxed?
Validator nodes are constantly online, keeping the blockchain up to date. For PoW blockchains like BTC, validator nodes are not rewarded financially. Instead, validator nodes enable miners to compete to calculate a hash the fastest and the miners are the party rewarded. So for crypto miners for PoW blockchains - validator nodes do not result in a tax liability.
However, with PoS chains, like ETH, blocks are minted by the validator nodes, and it is the party acting as a validator that is rewarded. These rewards are generally taxed as income upon receipt, just like mining rewards would be.
How do I find the cost basis for pre-mined coins?
In some instances, miners can ‘pre-mine’. This refers to mining coins prior to an Initial Coin Offering, or ICO. In these instances, these coins would have no obvious fair market value as there is no market for them yet. It’s unclear in these instances how to determine cost basis for tax purposes and there’s no guidance from the IRS yet on this topic. You should speak to an accountant for advice on how to treat your pre-mined coins from a tax perspective.
Should I report my mining activity as a business or a hobby?
Setting up a crypto business allows you to deduct expenses related to mining and offers some legal protections as well, but the tax reporting requirements are more complex, so many investors opt to remain hobby miners despite the benefits. You should speak to an experienced accountant for bespoke advice on your situation.
Can the IRS track crypto mining?
Yes. The IRS is actively working with crypto exchanges and other crypto businesses to track investors’ transactions and connect individuals to accounts using KYC processes. You should always report your crypto accurately to avoid penalties.
Do you have to pay taxes on crypto mining if you don't cash out?
Yes. Even if you don’t sell your crypto mining rewards for cash, they’re considered income upon receipt in the eyes of the IRS. So you’ll pay tax on your crypto mining rewards even if you don’t cash out. If you do later cash out, you may also be required to pay Capital Gains Tax as well.
Should I track mining taxes on an ongoing basis?
Yes. As mining is taxed at the time of receipt, tracking your mining taxes on an ongoing basis keeps you up to date with your tax liability as you’ll know the fair market value of your mining rewards. Given the price volatility in crypto, if the price of your crypto falls significantly and you have not kept track of your tax liability, you may find yourself in a position where you’re unable to pay tax due.