Editor's Note: This article comes fromCybtc Blockchain (ID: cybtc_com), reprinted by Odaily with authorization.
Editor's Note: This article comes from
Cybtc Blockchain (ID: cybtc_com)
Cybtc Blockchain (ID: cybtc_com)
, reprinted by Odaily with authorization.
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The IRS first published its guidance on taxing cryptocurrencies in 2019, and clarified how taxes from the mining industry should be reported. The IRS considers mining profits to be income for tax purposes and, like any income, requires miners to pay taxes.
Bitcoin miners would do well to be mindful of the tax implications of their operations, as failure to comply could result in action from the IRS.
The key thing to note is that Bitcoin mining rewards should be taxed when they are received, not when they are sold. Every time a bitcoin miner receives mined bitcoins in their wallets, the market price is used as the cost basis for reporting gross revenue. Miners will report gross earnings on Form 1040, the official form of U.S. personal income tax returns.
"When a taxpayer successfully mines a virtual currency, the fair market value of the virtual currency is included in gross income from the date of receipt," the IRS said.
Commercial miners make up a large portion of the U.S. mining population, according to crypto tax software TaxBit.
Commercial miners and retail miners
Those engaged in mining activities on a commercial scale will need to report their income and expenses on Schedule C (Form 1040). Mining tax will be allowed to claim deduction.
According to the IRS, miners can deduct expenses such as hardware, equipment, electricity, internet and other business costs from mining revenue.
According to CoinTracker, another key point to remember is that self-employed individuals must pay the 15.3% self-employment tax by attaching Schedule SE to Schedule 1040.
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Mining tax and capital gains
If miners immediately sell and liquidate their newly acquired digital currency, their profits are not subject to capital gains tax. However, if they sell their cryptocurrencies for a profit, capital gains tax and income tax need to be considered.
While bitcoin mining profits are classified as income, the IRS treats the cryptocurrency itself as property. Therefore, every time they are sold for cash or exchanged for other cryptocurrencies, there is a capital tax event.
