IRS Guidelines on Crypto Mining Taxes


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    In the world of cryptocurrency, taxpayers must report their capital losses and capital gains on their return during the tax season. However, many of them who make transactions for mining crypto tend to overlook the possible deductions and even tax implications. Besides that, everyone must include every transaction with their mined crypto on their return whether selling or trading it in the market. Any of these can be a taxable event that may incur appropriate taxes to the miners. 

    Moreover, if you’ve been investing in virtual currency for quite some time now, you need to have a complete understanding about how the mining taxes work in cryptocurrency. These are the taxes that can easily get complicated and tend to create different tax implications. That’s why the Internal Revenue Service takes cryptocurrency mining taxes seriously across the country. Hence, to know anything about your legal obligations when you do crypto mining, here are the guidelines from the IRS that every taxpayer should observe and follow. 

    What is the IRS Guidance on Crypto Mining Taxes?

    Whenever your wallet receives a virtual coin, it triggers a taxable event like what will usually happen with your regular income. Besides that, as mentioned earlier, the taxes you owe from mining cryptocurrency depends on its fair market value on the date you earned it regardless of the fact whether you’ve gained or lost a profit. 

    That’s why everyone investing in virtual currency should always keep all transactions recorded for tax purposes. It includes the value of the crypto when you earned it, the value of the capital gains or losses when you sold it, and even the exact date of receiving the crypto in your wallet. Moreover, many people reporting crypto taxes on their returns can be a little bit complicated. It’s because there’s no employer who will report your gross income by issuing Form W-2, and most of the cryptocurrency mining companies also don’t report the income you received by issuing Form 1099s. 

    Hence, keeping records of all your crypto transactions will help you get rid of stress when filing your taxes during tax season. Besides that, as the IRS is continuously reinforcing tax evasion, crypto mining tax reporting is vital when filing returns. That’s why all miners should know about the crypto mining taxes and how to report them properly, tax implications when they trade or sell their mined cryptocurrency, and the qualifications they can qualify for deductions. 

    How is Tax on Crypto Mining Calculated?

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    Every time you dispose of your mined cryptocurrency, that’s a taxable event, incurring a capital loss of capital gain. The value of your crypto asset on the date you purchased it will be your cost basis. Then, to get your capital loss or gain, you have to deduct that value from the exact amount of the crypto when selling it in the market. 

    Hence, you’ll have capital gains if the selling value of the crypto is higher than the cost basis. It also depends on the holding period and the total amount of the taxable income. However, you’ll have capital losses if the selling crypto value is lower than your cost basis. This is how you should determine the cryptocurrency mining taxes you owe on every successful mining of virtual currency. 

    Is Crypto Mining Income Taxed Twice?

    You may incur taxes in cryptocurrency mining twice, depending on whether you earn capital gains or losses. The moment you earn from mining a crypto, you have to pay for the corresponding taxes for it. Then, if its value has increased over time when you decide to sell it, you’ll be paying for the incurred capital gains taxes. However, if it’s selling value becomes less than its cost basis, it’ll be your capital loss, giving you tax benefits instead of incurring another owed taxes. 

    Selling or Trading Mined Crypto? Beware of these tax implications.

    You always have to be aware of the tax implications every time you sell or trade your mined cryptocurrency. Whenever you make any of these transactions, you have to report it on your return by filing Form 8949 during the tax season. In addition, every time you sell or trade your mined crypto, the taxes you owe will depend on its fair market value on the date you dispose of it in the market. As mentioned earlier, if the value of your crypto has increased when you dispose of it, you’ll incur corresponding capital gains taxes. Otherwise, it’ll be your capital loss, which will give you tax benefits in return. 

    How to Report?

    Reporting your income from mining crypto will depend on whether the transaction you did was a business or a hobby. If it’s a hobby, you have to file Form 1040 Schedule 1. You have put it on line 8 on the form as “other income,” and the crypto mining tax rate will depend on a particular bracket where your income belongs to. 

    However, when you mined crypto as a business, you should establish it by organizing it as an LLC when reporting your return using Form 1040 Schedule C. Besides that, many people want to set up the business they have as a pass-through entity because it doesn’t have any liability protection and even legal filing. In addition, business miners will also need to pay for the self-employment tax. Hence, whenever you establish your mining transaction as a business, you can have some business and tax expenses from your mining costs. 

    Crypto Mining Deductions

    Since mining crypto may cause you to have different expenses, you’ll receive corresponding incentives or deductions when establishing it as a business. However, it’ll be best if you consult with a tax professional to identify the appropriate cryptocurrency mining tax deductions with proper documentation to include on your report. 

    It includes your purchase of a crypto mining rig. For many companies, any tangible purchases are part of business expenses instead of treating them as…