Jun 11, · If you buy bitcoin and hold it for more than a year, you pay long-term capital gains when you sell. For federal taxes, that means you pay a 15% tax on any gains, unless you make a Author: Matt Hougan. If you mined bitcoin or other cryptocurrencies or received rewards from crypto staking, then you are liable for income tax on what you earned. In the United States, per IRS guidance, crypto mining is to be treated as ordinary income using the total fair market value of the currency at the date of receipt. Bitcoin Mining as a hobby vs Mining as a business If you mine cryptocurrency as a hobby, you will include the value of the coins earned as "other income" on line 21 of Form Schedule 1. Your ability to deduct any expenses associated with the mining is limited—expenses are itemized deductions subject to the 2% .
Income tax on bitcoin miningFiling Bitcoin Taxes on for Income, Spending and Mining
As we all know, the value of cryptocurrencies can vary greatly, even within a single day. If you can pass the test to list your activity as a business you will probably be able to reduce your tax liability with deductions and credits.
You will also need to consider the tax implications of selling your Bitcoin in the future. When you sell the Bitcoin or other cryptocurrency it is a taxable event and is subject to capital gains taxes. Of course if the coins are worth less when you sell them than their basis you can claim a loss for tax purposes. This makes it critically important to track the data and value of all coins you mine.
Consider too that capital gains taxes are different for short term holdings — if you sell after holding the coins less than a year — and long term holdings of longer than a year. Not only does the information above apply to coins you mine yourself, it also applies to coins you might receive through mining pools, faucets, or cloud mining.
Since you incur costs such as electricity and the cost of hardware when mining cryptocurrencies you might be wondering if these costs are deductible on your taxes. The amount you can deduct will depend on whether your mining activity is categorized as hobby or business.
The U. Yes, this is a bit flexible, but in general it would cover any of the following mining expenses. You will need to determine the proper allocation of some of the above expenses for your mining operation. It might even make sense to purchase a portable electricity meter which would be a deductible expense , so you would know exactly how much electricity your mining rig uses.
For large hardware purchases you may have to use the depreciation method for deducting the expense. To qualify as a business the activity must be done on a continuing, consistent basis, with the purpose of profit generation. Further, it is not allowed to deduct any losses from your mining activity. Those with mortgage expenses will likely be able to qualify, but many others will not.
Business expenses are calculated using schedule C and are far more generous. You can include your continuing education expenses, home office expenses, and start-up costs if you are filing as a business. Plus there are no limitations as there are with itemized deductions. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. With bitcoin, you can run afoul of the IRS in a few surprising ways, so it pays to learn the rules.
The big picture? Bitcoin and other cryptocurrencies that you buy, sell, mine or use to pay for things can be taxable. Also, if your employer or client pays you in bitcoin or other cryptocurrency, that money is taxable income.
You report your transactions in U. In , the IRS issued a notice declaring that for tax purposes, cryptocurrency is property, not currency. To make sure you stay on the right side of the rules, keep careful track of your cryptocurrency activity. That information will help you calculate your bitcoin taxes. That information may not be easily available. But both conditions have to be met, and many people may not be using bitcoin times in a year.
Whether you cross these thresholds or not, however, you still owe tax on any gains.