Crypto Mining Taxes

Hello Everyone,

I thought I would reach out and see what everyone’s strategy is for mining your crypto and dealing with taxes? I’m in the US and apparently you are double taxed on crypto mining: once when you mine the coin, and then when you sell the coin. It’s BS in my opinion, but thats another topic. Eitherway, are you guys taking profits regrularly, or just holding on year to year and paying your taxes on your crypto out of your own pocket (not your from mined coins) and hoping to sell later?

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If your mining bitcoin into an account and NOT realizing any profits, will that work. When I day traded once upon a time you could just make some loosing in monitary trades to offset your tax obligation, all the while banking on your losing trades becoming viable “over time”.

This is an interesting topic, as I also live in the US and I will also need to start separating my own taxes, and only selling the coins that I will need to convert to cover for my tax obligations.

Also I think I can use the transaction fees, and miner cost, plus colocation cost as tax deductible to help me pay less on taxes. :relaxed:

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Would love to see more on this topic!! Any insights others can offer would be fantastic.

Figuring this out has been a passion of mine since 2018 (for USA taxes). Your comment above is a little off - you are not really “double taxed” on crypto mining. But you do have to do tax reporting at two separate times which is really tedious:

  1. You’re taxed on the Fair Market Value in USD of the coin when it showed up in an address you control – this shows up likely as Misc Income and included in the total of whatever income you pulled in that year.
  2. If you trade the coin for anything (other coins, USD, …) or if you spend the coins to buy something then you have a Taxable Event on your hands. The simplest way to track a taxable event is to take the Fair Market Value in USD of the coin when you dispose of it and subtracting the Fair Market Value in USD of the coin when you acquired it (aka. the Cost Basis). If the value is negative, that’s a loss. If the value is positive, that’s a gain. You pay taxes on the gains only – the differential. Each taxable event must get listed on a Form 8949 which is painful. But you’re not exactly being double taxed.

There are complexities esp. in item #2 above in terms of choosing a Cost Basis Calculation method (FIFO, Specific ID, other exotic strategies) and in determining if you’re subject to short-term capital gain (higher tax rate) or long-term capital gains. You can also adjust your cost basis if you incur Tx Fees along the ways, carry over losses, do loss harvesting to cover your gains etc. There’s just a ton to learn here.

This all frustrated me so much that I wrote some open source do-it-yourself crypto transaction tracking spreadsheet software, called HODL Totals, built on google sheets. https://www.hodltotals.com if you want to take a look (it’s free). Also rallying a Discord community to handle Q&A. Best of luck!

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Hey dogracer,

Thank you so much for this info!

I got a question though, is this something I can completely do from cryptotrader.tax?

:crossed_fingers: :grin:

Yes, and there are like 10 services like cryptotrader.tax. My research has shown that they all charge by the transaction count. This really hoses miners and makes paying for these services infeasible if you have a lot of mining transactions. The cost to use the services can quickly eclipse your actual profits!

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There is actually someone suing the IRS over this rule, and he has a valid point. If you grow a crop, produce, a painting or product, you are not taxed until you sell it, not when you harvest, or when the product is produced. If he has a good lawyer, he just might win.

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Not to mention that congress wants us to have “broker” license to mine… And they want every mining pool to have a KYC in place too!!! :dizzy_face: :skull: :skull_and_crossbones:

I just spoke with 2 CPAs about this. This double taxation is actually a massive problem. What this means is it literally cost you less to buy crypto than to mine it. To be clear you take a penalty for creating bitcoin over someone who buys it. I am going to talk to a tax attorney about this because we’re not being paid to mine we’re creating an asset and attempting to hold it. If I pick a tomato it becomes an asset and I’m not taxed until I sell it. The IRS wants to take their cut but not take bitcoin as payment for it. I honestly can’t figure out why anyone is mining in the US with these absurd tax rules.

I’m still not seeing the double taxation. In the tomato example, you grow a tomato [pay zero tax at tomato creation time] and then you sell the tomato for $5 [and pay tax on the $5 income from selling the tomato].

In the mining equivalent, you mine $1 worth of a coin [and pay tax on $1, its value at coin creation time] and then you sell the coin later for $5 [and pay tax on $4 of income ($5 sale price MINUS the $1 fair market value price you were already taxed on)].

Either way you’re paying income taxes on $5 of income. Its super inconvenient to have to pay it in two separate events but I still don’t think that double taxation happening.

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yeah this “broker” stuff is getting of hand. TERRIBLE news that the Senate passed the bill on to the house without an ammedment.

How would that work if you mine $100 but the market crashes and you sell it for $50.

Just curious

You show it as a loss. In fact if your going to have a huge crypto tax bill take some chances, you can always take losses, just like when someone starts a new business.

There is a case working its way through the courts to challenge this. It would be the only product ever that was taxed when it is produced instead of sold, in history.

You can also deduct electricity costs, internet costs and the cost of the miner, as well as any improvements you made to get the miner working, like new electrical circuits.

guys. You can mine crypto in a self directed IRA. Its complicated but only a few thousand in fees. Search Mark Kohler on Youtube. They have tons of videos. The Biden tax bills might kill this possibility but they have other strategies. Right now there are people mining tax free and the gains are tax free all 100% legal. Same for stocks, precious metals etc. Crazy not to at a minimum setup a S corp and deduct your expenses as TJK54 mentioned.

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Personally I think they should separate it into two Tiers traders and miners. If you trade and make a profit you pay capital gains tax. If you mine and convert it to fiat you pay income tax as you worked for it. Do governments pay capital gain when they print or mint new currency which is just the same as mining it.

If I go out for a walk and find a nugget of gold do you pay capital gains.

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If mining is considered a business doesn’t the Bonus Depreciation apply to all mining equipment and electric upgrades(like adding $40,000 of solar panels to mine) until end of 2023.

Bonus depreciation

  • The bonus depreciation allowance is 100% for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023.
  • With bonus depreciation, the assets may be new or used.
  • Purchases of qualified used property meet the criteria for the deduction unless purchased from a related party.
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Only on a schedule C, which subject’s you to self employment tax. Trump’s tax cuts removed the hobby deduction from other income reporting.