How to Report Crypto Mining Income?

Cryptocurrency mining involves using powerful computers to verify transactions on a blockchain network, and in return, miners are rewarded with new coins. The Internal Revenue Service (IRS) views these rewards as taxable income. The moment you successfully mine a coin, you have a taxable event that must be reported, and how you do so depends on the nature of your mining activities.

Determining Your Miner Status Hobby vs. Business

The initial step in reporting crypto mining income is to determine whether your activity constitutes a hobby or a business. This classification is significant because it dictates how you report income and whether you can deduct expenses. The IRS provides nine factors to guide this determination, and the entire scope of the activity is considered.

Factors pointing to a business include operating in a businesslike manner with complete records and the expertise you possess. The time and effort you expend, a history of profitability, and your financial reliance on the activity also suggest a business intent. In contrast, the presence of personal pleasure or recreation can point toward a hobby. A casual miner using a single home computer is more likely to be viewed as a hobbyist than someone running multiple, dedicated mining rigs.

Calculating Mining Income and Expenses

Income is recognized at the moment you gain control over the mined cryptocurrency. The amount of income is the fair market value (FMV) of the coins in U.S. dollars at the precise date and time of receipt. To determine the FMV, you can use the quoted price from a reputable cryptocurrency exchange, and it is important to document the source of your valuation. Maintaining meticulous records of each mining reward, including its USD value, is necessary for accurate reporting.

For those operating as a business, deductible expenses are those considered ordinary and necessary for conducting your mining business. Common deductions include electricity costs, internet fees, and rent for a dedicated mining space. Hardware costs are typically recovered through depreciation, where a portion of the cost is deducted each year over the asset’s useful life. In contrast, individuals classified as hobby miners cannot deduct any expenses. This is a result of the Tax Cuts and Jobs Act of 2017, which suspended miscellaneous itemized deductions through 2025.

Reporting Procedures for Hobby Miners

If you have determined that your mining activities are a hobby, the reporting process is relatively straightforward. All income you calculated from your mining rewards is reported as “Other Income.” This income figure is entered on Schedule 1 of Form 1040. You will also need to provide a brief description of the income source, such as “cryptocurrency mining income.” The total from Schedule 1 then flows to your main Form 1040, where it is combined with your other sources of income to calculate your overall tax liability.

Reporting Procedures for Business Miners

Miners who classify their activities as a business report gross income and deductible expenses on Schedule C, “Profit or Loss from Business.” This form is filed with your annual Form 1040 tax return. On Schedule C, you will report your total gross receipts, which is the total FMV of all cryptocurrency you mined, and then itemize your business expenses. The difference between your gross income and total expenses is your net profit or loss.

This net profit from Schedule C is subject to ordinary income tax and self-employment tax. This tax covers Social Security and Medicare taxes for self-employed individuals and is calculated on Schedule SE, “Self-Employment Tax.” If your net earnings from self-employment are $400 or more, you must file Schedule SE and pay the calculated tax.

Tax Implications of Selling or Exchanging Mined Crypto

A separate taxable event occurs when you later sell, trade, or otherwise dispose of the coins you mined. For tax purposes, cryptocurrency is treated as property, and its sale is subject to capital gains tax rules. The cost basis of your mined crypto is the fair market value (FMV) in U.S. dollars on the date it was mined—the same amount you previously reported as ordinary income. This prevents the same value from being taxed twice.

When you sell the crypto, you calculate your capital gain or loss by subtracting your cost basis from the sale price. The tax treatment of the gain or loss depends on how long you held the crypto. A holding period of one year or less results in a short-term capital gain, which is taxed at your ordinary income tax rates. If you hold the crypto for more than one year, it qualifies as a long-term capital gain, which is subject to more favorable tax rates. These transactions must be reported on Form 8949, with totals summarized on Schedule D.