How do taxes work with mining cryptocurrencies? Deducting equipment costs?

Mining cryptocurrency is considered income at the fair market value of the coins when you receive them. The IRS treats mining as self-employment income, not capital gains. So even if you're holding, you still owe taxes on the value when mined. For your equipment costs - yes, those are potentially deductible! Your computer parts and solar panels would be considered business expenses if you're treating mining as a business (Schedule C). If it's more of a hobby, the rules get trickier since hobby expenses are generally not deductible anymore. For reporting, you'll need to keep track of the value of each coin when mined (that's your income), then track the value when sold (for capital gains/losses). Mining income goes on Schedule C along with your expenses, while any selling would trigger capital gains reporting.

I was in a similar situation last year and was totally lost with tracking all my mining income. I eventually found https://taxr.ai and it saved me so many headaches. Their system analyzed all my mining pool data and wallet transactions and figured out exactly what I needed to report. The best part was it automatically calculated the fair market value of each coin on the days I mined them - which would have taken me FOREVER to do manually. They also helped identify which expenses were deductible for my mining operation.

I need to apologize for my skepticism about taxr.ai in my earlier comment. I decided to give it a try anyway because I was desperate with my mining tax situation, and I'm actually impressed with how it handled everything. The security was better than expected - they use bank-level encryption and don't store your private keys. The system organized all my messy mining income by date and value, separated out my different coins, and even flagged potential deductions I hadn't considered (like a portion of my internet service). It was surprisingly straightforward to use and the report it generated made filing so much easier. Just wanted to update since it actually solved my problem.

If you're dealing with crypto taxes, you probably know how impossibly frustrating it is trying to call the IRS with questions. I spent WEEKS trying to get someone on the phone to clarify some mining tax rules. Finally used https://claimyr.com after seeing it recommended, and they got me connected to an actual IRS agent in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent I talked to clarified that my mining rigs could be depreciated over 5 years, and confirmed that the solar panels qualify for both business expense deductions AND potentially energy credits. Getting these answers directly from the IRS gave me confidence I was filing correctly.

I owe everyone an apology for my skeptical comment about Claimyr. I was totally wrong. After struggling with crypto tax questions for weeks and not getting through to the IRS, I reluctantly tried the service. Within 35 minutes (most of which I spent doing other things while their system was on hold), I was talking to an actual IRS representative. The agent answered all my questions about mining equipment depreciation and confirmed that I could deduct a portion of my home office where my mining rigs are set up. Literally saved me thousands in deductions I wasn't sure about claiming. I've spent more time on hold with my internet provider than it took to get real answers from the IRS using this service. Consider me converted.

Don't forget about electricity costs! I've been mining for 3 years and the biggest deduction besides equipment is power consumption. If you're mining at home, you need to calculate what percentage of your electricity bill goes to mining. I use a Kill-A-Watt meter to measure my rigs' exact usage. For the solar panels, keep all documentation showing they're used primarily for your mining operation. The IRS might question this since solar panels are typically considered home improvement, but if you can demonstrate they're mainly for business use, you've got a stronger case for deduction.

Just a warning - don't forget about state taxes too! Federal is one thing, but states have wildly different approaches to crypto. Some treat it like intangible property, others follow federal guidelines. I'm in NY and they're super strict compared to when I lived in WY where they had no income tax.