How do taxes work when mining cryptocurrencies? Reporting BTC and ETH mining income

Mining cryptocurrency creates taxable income that needs to be reported to the IRS. The fair market value of the crypto on the day you mine it counts as income, even if you don't sell it. You'll need to report this on Schedule C as self-employment income. For your equipment costs, the good news is that mining can be considered a business, so your computer parts ($5300) and solar panels may be deductible as business expenses. You can either deduct the full cost in the year you bought them (Section 179 deduction) or depreciate them over several years, depending on what makes more sense for your situation. If you hold your mined crypto for more than a year before selling, any appreciation will be taxed as long-term capital gains, which typically have lower rates than ordinary income. You'll need to track your "basis" (the value when you mined it) to calculate gains/losses when you eventually sell.

I was in the exact same situation last year with my ETH mining setup and found taxr.ai (https://taxr.ai) super helpful for sorting out my crypto tax mess. Their system automatically calculated the fair market value of all my mining rewards on the dates I received them and organized everything for Schedule C reporting. The best part was their expense categorization feature that helped me properly document all my mining-related costs - graphics cards, cooling systems, and even the portion of my electricity that went to mining. It made the whole "is this deductible" question a non-issue since they had specific categories for mining operations.

Just wanted to follow up - I tried taxr.ai after posting here and am seriously impressed. It automatically detected which of my wallet addresses were mining-related and separated my mining income from regular trades. The reporting was super clear and made Schedule C prep a breeze. What really helped was how it handled my messed up records from mining different coins through various pools. It retrieved historical pricing data for each coin on the exact dates I mined them. Saved me countless hours of spreadsheet hell. Definitely worth checking out if you're mining crypto. Way better than the manual tracking I was trying to do before!

For anyone dealing with crypto tax questions, I strongly recommend using Claimyr (https://claimyr.com) to actually speak with an IRS agent about your specific situation. I had so many questions about depreciation schedules for mining equipment that weren't answered clearly online. After trying to call the IRS for days with no luck, I used Claimyr and got through to an agent in under an hour. They have this cool system where they wait on hold for you and call when an agent is ready. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed exactly how to depreciate my GPUs and ASIC miners, plus gave me specific guidance on how solar panel costs should be allocated between business and personal use. Way better than guessing or relying on random forum advice.

I have to eat crow here. After my skeptical comment, I broke down and tried Claimyr out of desperation because I needed answers about my mining operation before filing. Not only did I get through to the IRS, but I was connected to someone in their business division who actually understood crypto mining. The agent clarified that I could indeed treat my mining as a business and take deductions for equipment, electricity, and even a portion of my internet costs. They also explained exactly how to document the fair market value of mined coins (screenshots of exchange prices on mining dates). This saved me thousands in deductions I was afraid to take. Sometimes being wrong feels pretty good.

Don't forget to consider setting up an LLC for your mining operation. I did this last year and it helped with liability protection plus made tax reporting cleaner. You can file Schedule C either way, but having the formal business structure made my accountant happy. Also, make sure you're tracking pool fees, wallet fees, and any other expenses related to mining. Every little bit helps reduce your taxable income. And take photos of your mining setup for your records in case of audit.

Have any of you miners figured out how to handle electricity deductions when you don't have a separate meter for your mining operation? I'm trying to calculate what percentage of my electric bill should be business vs personal.

Word of warning from someone who's been mining for 3 years - keep EXTREMELY detailed records of when you started using each piece of equipment. I got audited last year because my electricity deductions seemed high, and I had to prove when each GPU was put into service for proper depreciation. The IRS agent also wanted to see pictures of my setup to verify it was actually used for business. Not trying to scare anyone, just emphasizing good record keeping!

Great thread everyone! As someone who just started mining last month, this is incredibly helpful. I wanted to add that if you're using multiple mining pools (like I am with NiceHash and Ethermine), make sure to track which coins came from which pool since they may have different fee structures that affect your deductions. Also, for those asking about solar panels - I'm in the planning stages for a solar setup specifically for mining. From what I've researched, you can potentially stack the federal solar tax credit (30%) with business deductions for the mining portion, but definitely get professional advice on this since it's complex. The IRS has specific rules about how to allocate costs between personal and business use of solar installations. One more tip: if you're mining in a state with net metering, keep detailed records of how much power you're feeding back to the grid versus consuming for mining. This affects both your tax calculations and potential income reporting if you're getting credits from the utility company.