Crypto Mining and Farming Income

[Eximius]

Hi,

I started small crypto mining (along with farming, staking, and play to earn) in 2021. I understand that if I file these income as a hobby, I won't be able to deduct expenses. My question is, is it worth it to file these as self-employment so I can deduct expenses or just pay the associated tax that it incur? Say with these income, I have to pay perhaps couple (plus more) thousands.

List of my expenses are (but not limited to):

• Mining hardware (such as computer components, graphics cards, power supply)
• Electric bill for these computer(s) (I have a meter for each computer and computed expenses per month)
• For crypto farming (DeFi) expenses, there are what we called impermanent loss, and also gas fees (and yes it adds up).
• For play to earn, I guess not much really expenses here as this falls in the Capital gains / loses. One example is when buying NFT and later on selling it for a loss as it lost it value over time.

I have receipts for the mining hardware stuffs and a complete transaction reports for crypto farming (DeFi) and staking from crypto tax aggregator software (online tool).

Hoping to reduce taxes I have to pay but also avoid getting audited because I chose to use the wrong form (hence hobby income and expenses vs self-employment income or expenses).

Thanks

[RobertB4444]

The one advantage to hobby income is that you don't have to pay self-employment tax on it.  It also can't be a primary source of income.

Self-employment tax is the social security and Medicare owed on income that you have.  It amounts to around 15% of your earnings.

If your hobby expenses are less than 15% of your earnings and your hobby income is definitely not a primary source of income for you then going ahead and entering the crypto mining as a hobby is fine.  However, the IRS is paying closer attention to cryptocurrency than ever before.  Be certain that you meet these qualifications for your income to be a hobby.

[Eximius]

Thanks for the answer. Looking at my numbers, it seems expenses are about 35% of my earnings. And yes, none of these earnings are primary source of income.