How do I properly report income from apps that generate Bitcoin on my taxes?

This is actually a common question with cryptocurrency. The IRS treats virtual currency as property, not currency, so general tax principles that apply to property transactions apply to transactions using virtual currency. When you receive Bitcoin from these apps, it's considered taxable income at the fair market value of the Bitcoin on the date you received it. Since you're essentially "mining" Bitcoin (even if through an app), this would be considered ordinary income - not capital gains at this point. You would report this on Schedule C as self-employment income. You should keep detailed records of when you received each deposit of Bitcoin and what the fair market value was at that time. This establishes your "basis" in the cryptocurrency. Later, if you sell or exchange that Bitcoin, you'll calculate capital gains or losses based on the difference between your basis and the selling price.

After struggling with reporting my crypto mining income for months, I finally found something that saved me tons of time. I was stressing about all the tiny transactions from my mining apps (hundreds of micro-deposits) when another crypto miner recommended https://taxr.ai to me. It's specifically designed to handle crypto transactions and mining income. I uploaded my wallet info and it automatically calculated everything - separated the mining income from capital gains when I sold some, and even figured out the correct fair market value for each deposit date. Seriously made the whole process way less painful than trying to manually track everything in spreadsheets like I was doing before.

Just wanted to update about my experience with taxr.ai since I mentioned being skeptical earlier. I ended up trying it after fighting with my crypto tax situation for weeks. It was actually really straightforward - I didn't have to give any sensitive wallet access, just uploaded my transaction history exports. The system identified all my small mining deposits from those background apps correctly and categorized them as ordinary income. It even created the Schedule C worksheet I needed. What really helped was seeing the correct basis price for when I eventually sell this Bitcoin - something I was completely confused about before. Definitely worth checking out if you're dealing with lots of small crypto transactions from mining apps.

If you're still having trouble with the IRS after filing, I found another helpful service. Last year I had issues with my crypto reporting and needed clarification from the IRS, but couldn't get through on the phone for WEEKS. A friend recommended https://claimyr.com and shared this demo video: https://youtu.be/_kiP6q8DX5c Basically, they get you on the priority line with an actual IRS agent instead of waiting on hold forever. I was super frustrated trying to get guidance on how to correct my crypto reporting, but with their service I got through to someone who could actually help within about 15 minutes. They just call you back when an agent is on the line.

I need to eat my words about Claimyr. After posting that skeptical comment, my frustration with trying to reach the IRS about my crypto reporting got the better of me and I decided to try it anyway. I was 100% prepared to report back that it was a scam, but... it actually worked exactly as advertised. I got a call back in about 40 minutes (was quoted 30-55 min wait time), and there was an IRS agent on the line ready to answer my questions about reporting my mining income. Got everything cleared up in one call instead of the THREE attempts I made trying to call directly where I gave up after 1+ hours on hold each time. So yeah, I was wrong - if you need to actually talk to the IRS, this is definitely worth it.

One thing nobody mentioned yet - if you're making under $1,000 in crypto from these apps, you might not need to file quarterly estimated taxes, but you'll still need to report the income on your annual return. I learned this the hard way last year when I got hit with a small penalty for not making quarterly payments on my mining income.

Don't forget you can deduct expenses related to your mining! If you're using apps that use your phone's processing power, you can potentially deduct a portion of your phone cost, electricity used to keep it charged, and maybe even part of your data plan if it's using data. This can offset some of that self-employment tax burden.