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  • Writer's pictureTerahash Solutions

Top 5 questions regarding Bitcoin mining and taxes

Updated: Oct 3, 2023

Welcome to Terahash Solutions, today we aim to provide valuable insights into cryptocurrency mining taxes to help you navigate this crucial aspect of your mining journey. As the popularity of cryptocurrencies continues to grow, it has drawn the attention of regulatory bodies, including the IRS, which has implemented rules to ensure miners comply with tax obligations.

Let's delve into some frequently asked questions concerning crypto mining taxes.

1) Are mining rewards subject to taxation?

Yes, mining cryptocurrency, whether received as remuneration for goods or services or as promotional rewards, is considered taxable income. The taxes are levied on the fair market value of the coins received on the day of acquisition, at your regular income tax rate, as per IRS Notice 2014-21.

2) How are mining rewards taxed – as income or capital gains?

Mining rewards obtained through hobbies are treated as ordinary income by the IRS and taxed at your personal marginal tax rate. On the other hand, if you subsequently sell the mined cryptocurrencies for profit, the profits are reported as capital gains.

3) Should I classify my mining taxes under a hobby or a business?

Bitcoin miners have the option to treat their mining activities as either a hobby or a business. While the hobby classification may seem simpler, declaring it as a business allows for more deductions and potential tax benefits, potentially reducing your overall tax liability. The decision depends on various factors such as time and effort invested, intent to make a profit, and dependence on mining income. It's advisable to consult a tax professional for personalized advice.

4) If I file as a business, what mining expenses can I deduct?

As a business, you can deduct various expenses, including equipment, electricity, repairs, and space-related costs, among others. However, it's crucial to carefully consider the deductions and the risk of an audit. Speaking with your accountant or tax professional can help you make informed decisions.

5) How do I file taxes for my mining activity?

For detailed record-keeping, consider using an online transaction aggregator like Koinly, which automatically tracks prices and simplifies tax calculations. Koinly aggregates transactions across wallets and popular exchanges, aiding in accurate tax form completion, such as Form 8949 and Form 1040 Schedule D, and complying with regulatory requirements. Unlock the benefits of our referral program and earn $25 USD through our exclusive link!

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While some aspects of this blog may be specific to the USA, rest assured that Koinly is a widely-used platform by people worldwide for cryptocurrency tax reporting. So, regardless of your location, Koinly c

an help you efficiently manage your cryptocurrency taxes. Don't miss out on this global solution! By following these practices and using Koinly to manage your transactions, you can fulfill your tax obligations confidently, avoiding potential audit triggers. Remember, proper tax preparation ensures a smooth tax season experience.

At Terahash Solutions, we strive to provide you with the necessary knowledge and tools to succeed in the cryptocurrency mining world. If you have any tax questions or require further guidance, please contact a certified tax accountant. Happy mining!

Koinly Crypto Taxes

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