Is Crypto Mining taxed?

[lulukern123]

Hi I do the crypto mining and did not sell it yet. Actually there is not way to sell it currently you can only purchase goods/services but not sell the crypto on the exchange. The ability to transact crypto will be added in future years.  Is the mined crypto eligible for the tax now, if I did not sell it yet.

If I purchase smth using crypto, will it be taxable as well?

Thanks,

Lulu

[MelanieCPA · Accepted solution]

Hi @lulukern123 ,

Thank you for joining us today!  

If you earn cryptocurrency by mining it, it's considered taxable income on the day you receive the crypto.  You would report the income using the  fair market value of the cryptocurrency on the day you received it. Most mining companies do not issue Form 1099 to report income so be sure to keep detailed records of the receipt date and fair market value of your mined crypto earnings.

If mining is a hobby, you would report this income on Schedule 1 as Other Income and pay income taxes.  If you are mining as a source of income, you would need to report on Schedule C.  If you report on Schedule C, you can offset your income with the expenses related to mining, however you will be subject to self employment taxes in addition to income tax.

When you sell or spend the crypto, you then have a capital transaction resulting in a capital gain or loss that needs to be reported on your tax return on Schedule D.  In simple terms, you would use the fair market value of the crypto when you sold it reduced by the fair market value of the crypto when it was received.  Remember, you have already paid taxes on the fair market value of the crypto at the time you received it so now you will only need to pay taxes on the gains while you have held the crypto (or report losses).

Here is a great TurboTax article with examples of mining.

Your Crypto Tax Guide 

[zclar · Accepted solution]

Hi @lulukern123  and thanks for your question!

There will be two taxable events in your scenario.

Because you earned crypto for your mining work, it's considered taxable income and must be reported at the fair market value of the cryptocurrency on the day you received it. You may receive a 1099-NEC for this income. If not, you would still be responsible for reporting the crypto you received.

Now, if you sell, exchange, or use  your crypto to purchase anything, this would be another taxable event.  You have a capital transaction resulting in a gain or loss just as you would if you sold shares of stock. Your cost basis would be the fair market value of the crypto on the day you received it.

Below is excerpt from the article titled: Your Crypto Tax Guide 

For example, let's look at an example for buying cryptocurrency that appreciates in value and then is used to purchase plane tickets. The example will involve paying ordinary income taxes and capital gains tax.

• First, you receive $200 worth of the cryptocurrency Litecoin in exchange for services on January 15.
• Six months later, on July 15, the fair market value of your Litecoin has increased to $500, and you use it to buy plane tickets for a vacation.
• On your tax return for that year, you should report $200 of ordinary income (either as wages if reported on a W-2 or as self-employment income if you are not an employee getting paid in crypto) for receiving the Litecoin in January and a short-term capital gain of $300. That's the $500 value of your Litecoin when you purchased the plane tickets, minus your $200 basis when you received the Litecoin.

I hope this helps!