Bitcoin mining taxes and bitcoin tax filing
Bitcoin mining revenue is taxed as income, but Uncle Sam will also ask for capital gains if you sell you bitcoin for profit

The Tax Man Cometh--Do You Know How to File Your Bitcoin Mining Taxes?

Tax season is here, so here's a quick rundown on how to report your bitcoin mining taxes and the deductions you can claim.

Colin Harper
Colin Harper

April 15th is fast approaching y'all, and like it or not, this means that Uncle Sam will be asking for proof-of-taxation for your proof-of-work.

The explain-like-I'm-five breakdown for bitcoin mining taxes: your bitcoin mining revenue counts as income, and if your mining operation is classified as a business, then you can claim deductions. We cover the ins-and-outs of Bitcoin tax reporting in this 2021 blog post, but we'll also be giving a refresher in today's newsletter.

If you mine with Luxor, you can automate your taxes through one of our tax partners (over 25 jurisdictions supported).

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How Do I Report My Bitcoin Mining Taxes?

For starters, your Bitcoin mining rewards could trigger two tax implications, depending on if/when you sell the reward

1) Bitcoin mining rewards count as income, first and foremost. If you are a retail miner of small enough scale, this income can count as hobbyist income which is not subject to self-employment tax; if you are mining as an LLC or similar business, your revenue could be subject to self-employment tax (15.3%).

2) If you sell these rewards or use them to purchase a good/service, you will trigger a tax event in the US (and many other jurisdictions) for which you will have to pay capital gains.

Bitcoin miners had a record breaking year in 2021in terms of USD revenue
Bitcoin miners had a record breaking year in 2021 in terms of USD revenue

Specifically regarding mining revenue as income, for most retail and home miners, you have two filing options. If you choose to declare your mining income as part of an LLC or similar business, you can report the income under Schedule C and on line 3 of a Schedule 1 as part of your 1040 form.

If you choose to file as a hobbyist, then you add this to the “Other income” Line 8 on the Schedule 1 section of your 1040. The IRS will treat this as income, but it will not subject it to self-employment tax.

If you follow one principle when filing your Bitcoin mining taxes it should be this: always be consistent with your mining rewards' BTC-USD exchange rate. If you use closing price for one day's revenue, use closing price for the rest; same goes for if you use opening price or daily average price and the exchange/website you are pulling price data from.

If you sell your bitcoin within a year of mining it, it is subject to a short term capital gains cost, which is calculated as regular income and thus could be up to 37% of the sale amount (depending on where you sit on the income bracket).

If you sell your bitcoin a year or later after you mine it, it’s subject to long-term capital gains, which could be anywhere from 10-20% depending on your income bracket (but is typically 15% or lower for most folks).

Can I Claim Losses Or Deductions on Bitcoin Mining Taxes?

Like anything, it depends.

If you are mining bitcoin as an LLC or sole proprietor, then you can claim deductions for the following:

  • Equipment (miners, cords, routers, etc)
  • Pool fees
  • Hosting fees
  • Electricity
  • Repairs, maintenance

If you file with a Schedule C, you are entitled to deductions of ordinary and necessary business expenses against your mining income; if you file with Line 8 on Schedule 1 as a hobbyist, you are not.

As a business, you can also file for equipment deductions under Section 179 and using the safe harbor rule.

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Filing Bitcoin Mining Taxes the Easy Way

Filing taxes is a labyrinthian task with no end of maddening, tortuous verbiage and rules.  Bitcoin mining taxes, a niche in the larger taxation maze that is still being carved out, is incredibly complex still.

There are a number of ways you can play your taxes. Various methods of filing, various methods of claiming deductions, and endless rules and specific cases based on everything from your business status to your marital status.

As such, we recommend working with a tax professional to take the process out of your hands, maximize your return/minimize your necessary payment, and to make sure you're not doing anything stupid.

If you mine with Luxor, you can automate your bitcoin and crypto mining taxes with any one of our several crypto tax partners (in some cases, you can receive a discount on their services using our referrals).

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Colin Harper Twitter

Head of Research and Content at Luxor Technology