Mining Cryptocurrency Taxes

16.04.2022

Cryptocurrencies have enjoyed a considerable amount of popularity in recent months. However, because the market for these digital assets is so new, there are a lot of questions about how they should be taxed. The good news is that the IRS has provided some guidance on the matter, but there are still a lot of grey areas when it comes to mining cryptocurrency taxes.

Today, there are mining crypto taxes that miners have to pay. However, because cryptocurrency mining is a complicated process, taxing cryptocurrency miners can also be challenging. In addition, mining income might change depending on market circumstances.

Mining Cryptocurrency Taxes

In the U.S., crypto mining taxation has various implications requiring various forms of tax reporting. For example, you may be liable to crypto tax for using specific crypto wallets, making certain crypto purchases, and mining crypto. But, again, mining cryptocurrency taxes depend on the mining goal; is it for business or as a hobby?

Therefore, it is important to know the mining crypto tax laws to avoid legal troubles with the government. In this article, you will learn when and how mining crypto taxes can apply to you, how you can report your mining activities for taxation, and, most importantly, how you can minimize crypto taxes.

How Do Cryptocurrency Taxes Work?

The Internal Revenue Service (IRS) considers cryptocurrencies as capital assets and imposes taxes on all cryptocurrency profits made from sales. This is similar to the taxes on stocks and funds, traditional investments. Now, taxes on crypto mining depend on certain factors. For example, the value of the coins when they are received after mining, the duration of holding, and the purpose of mining (as a hobby or as a business).

Therefore, if the value of the coins falls and you sell at a loss, you could get some income tax rebate by claiming a capital loss. If you have held the coins for less or more than 12 months, you are entitled to short-term and long-term capital gain taxes. If you earn cryptocurrency as part of promotions (ads), as payment, or sell after the value increases, you will have to pay income and capital gain taxes. Hobby miners may not be taxed when they earn mining rewards, but income tax may apply if they sell at a profit. Mining bitcoin taxes are important as miners pay their fair taxes on the market value of mined coins when they receive them. Here is a table showing the capital gain tax rates for 2022.

mining crypto taxes

2022 Federal Income Tax Rates

Tax Rate

Single

Head of Household

Married filing jointly

Married filing separately

10%

$0 - $10,275

$0 - $14,650

$0 - $20,550

$0 - $10,275

12%

$10,276 - $41,775

$14,651 - $55,900

$20,551 - $83,550

$10,276 - $41,775

22%

$41,776 - $89,075

$55,901 - $89,050

$83,551 - $178,150

$41,776 - $89,075

24%

$89,076 - $170,050

$89,051 - $170,050

$178,151 - $340,100

$89,076 - $170,050

32%

$170,051 - $215,950

$170,051 - $215,950

$340,101 - $431,900

$170,051 - $215,950

35%

$215,951 - $539,900

$215,951 - $539,900

$431,901 - $647,850

$215,951 - $323,925

37%

$539,901+

$539,901+

$647,851+

$323,926+

Long-term Capital Gains Tax Rates for 2022

Tax Rate

Single

Head of Household

Married filing jointly

Married filing separately

15%

$41,676 – $459,750

$55,801 – $488,500

$83,351 – $517,200

$41,676 – $258,600

20%

$459,750+

$488,500+

$517,200+

$258,600+

In the U.S., crypto miners pay an income tax on crypto earned from mining. However, the amount depends on the scale of mining and is calculated on the coin's fair market value in USD on the day the crypto is received. The capital gains tax comes later when the crypto is sold, exchanged, or spent. Therefore, it is vital to learn how to calculate cryptocurrency taxes and file them if you intend to mine bitcoin or other cryptos.

How To File Taxes On Cryptocurrency?

There are special tax forms for reporting taxes in the U.S. and most countries with cryptocurrency taxes. There are different forms for reporting tax, and the one you'll use depends on the type of cryptocurrency transaction. It is important to establish that the US IRS can trace crypto transactions through the compulsory KYC request on the major cryptocurrency exchanges and banks accepting crypto transactions. It is, therefore, important to keep a detailed record of your crypto transactions. There are several tools for that; we'll discuss them later. Once you have your transaction records, you can file taxes.

taxes on crypto mining

Here are the tax forms and schedules:

Schedule D

The Schedule D form is for capital losses and gains from all financial investments. When filling the Schedule D, you must include every crypto transaction that qualifies as a capital loss or capital gain. I.e., if you have sold, exchanged, or swapped cryptocurrencies at a profit or loss, the transactions must be recorded in Schedule D. Note that Schedule D covers both short-term and long-term capital losses and gains. If you made a profit, report it.

Schedule 1

The Schedule 1 form applies to crypto mining taxes and tax deductions. If you are a hobby miner, you can file that report on Line 8 of the form. Hobby miners are not taxed under the self-employment tax; instead, a limitation is placed on the deductible expenses that you can claim.

Schedule C

If you report crypto mining as a business, you will file Schedule C. Schedule C covers income from self-employment and proprietary businesses. You can claim deductions for expenses (which will most likely be audited), but you may be subject to the 15.3% self-employment tax.

Form 8949

The Form 8949 is an all-inclusive form that covers all transactions irrespective of tax status. You have to file every crypto transaction, both buying and selling, in Form 8949. The form serves as a report for your net capital gain and losses on crypto transactions. You can use a crypto trading tax calculator to calculate your tax. Form 8949 has

  • the Total number of coins
  • The purchase date and price
  • Sell/Swap/Exchange date, and the price
  • Gain or loss per transaction.

As you might have noticed, one major challenge with filing crypto transactions is keeping track of transactions. Crypto traders and miners typically perform dozens of transactions in a calendar year, and it might become cumbersome to keep track of it all. What is the solution?

Register Your Taxes Thanks To Programs

Some crypto exchanges in the U.S. have a feature that allows users to export their transactions for a defined period. But there are software programs designed to help crypto users beat this limitation. For example, Crypto tax record programs, typically called crypto tax calculators, are software that tracks transactions and calculate tax and, in most cases, can send the transactions to the tax authorities.

Koinly and CoinTrackers are examples of such programs. Others are Coin Market Manager, FTX, Delta Exchange, Accointing, and Kubera. They work by tracking transactions and sending reports directly to the tax software. But there is also other ‘on-stop’ crypto tax software such as TokenTax that work for all financial transactions; you can track and calculate crypto, stock, investments, and other income. These crypto tax programs offer one advantage: you can track and submit taxes to State and Federal authorities. It is easier to register mining bitcoin taxes or any mining taxes using any tax program.

how to calculate cryptocurrency taxes

Keep Records Of Your Cryptocurrency Transactions

It is difficult for crypto traders and miners to pay correct taxes if they have wrong transaction records. Therefore, it is vital to keep accurate records of crypto transactions before filing tax forms, as incorrect entries may be deemed tax fraud. What does a proper transaction record contain?

  • Transaction date and time
  • Value of asset when received
  • Value of asset when sold
  • The duration of holding
  • Transaction receipt

The above are required for every crypto transaction record as they help place the transactions into the appropriate tax categories. It is also essential to keep every feature because crypto trading tax calculator programs require them to calculate taxes accurately. For example, if you omit the duration of holding the crypto asset before selling, the tax calculator may return a wrong result as there would be no short-term or long-term tax factored in.

It might also be expedient to include a description (mining rewards? payment?). In that way, you would know if there are mining taxes for such transactions.

How To Minimize Cryptocurrency Taxes

Taxes are like bitter medicine; they are necessary but unpleasant. No one likes to pay taxes, and thankfully, there are several legal methods to minimize the taxes you pay on crypto mining. Here are the top three ways:

1. Hire a professional

It could be tricky to prepare crypto transactions and tax reports for mining taxes yourself. The risk increases when the amount of mining crypto taxes increases. It may be worth hiring a professional and certified accountant to handle the tax documentation. The tax authorities may decide to audit your tax report, and innocent errors could lead to legal actions against you. Why take the risk? Consider hiring a professional to help you explore the official tax reduction laws.

2. Makeup profits with losses

You could also make up profits with losses by claiming tax losses on other cryptocurrencies that you sold. If, for example, you earned $5,000 worth of BTC as mining rewards but lost another $5,000 after selling some LTC, you may claim a mining tax exemption due to losses from crypto sales. Are you worried about paying 500 taxes on bitcoin mining? Simply get an accurate record of all crypto transactions and calculate your losses. Enter that information in the proper form and then apply for the tax exemption.

3. Store cryptocurrency for the long term

From the capital gains table above, you'll notice that long-term capital gains tax rates are smaller than the general capital gains, going up to half of the latter. This is a great way to reduce taxes on crypto mining; simply hold your mining rewards at least one year before selling. Cryptocurrency assets held for over a year are categorized as long-term capital gains and, therefore, lower tax deductions. Thinking of a way to get crypto mining tax deductions? Try holding your coins long-term.

Make Cryptocurrency Transactions In Compliance With Tax Laws

In this article, we have learned that the authorities treat cryptocurrencies as financial assets and therefore impose taxes according to the category of transactions they fall in. Mining cryptocurrency taxes depend on the duration of holding mining profits, the purpose of mining (hobby or business), and the profit status. This article also answers how crypto mining is taxed and gives a clear guide to the different tax forms and schedules, namely Schedule D, Schedule C, Schedule 1, and Form 8949.

Here at Minery, we provide you with cryptocurrency hosting services while keeping you updated on tax laws and regulations so that your business succeeds. If you are unable to keep track of your crypto transactions, there are programs designed to do that. They send automated reports to your preferred tax platform. With this knowledge, you can make cryptocurrency transactions in compliance with the tax laws, take advantage of tax exemptions, and maximize your chances of paying less tax legally.

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