Crypto Mining Taxes Guide

Mining rewards may feel like passive earnings, but they come with real tax consequences. From recordkeeping and income reporting to deductions and taxes, there’s a lot to track. Here’s what you need to know in 2025 to stay compliant.

How Crypto Mining Is Taxed

Mining rewards are taxed as ordinary income based on their fair market value (FMV) on the day that you receive them. You must report this income even if you haven’t sold or moved the coins.

Key point: You are taxed as soon as the coins are available to you. The IRS calls this constructive receipt. It applies even if the coins remain in a mining pool or wallet you haven’t accessed.

But that’s just the first tax hit. When you later sell, trade, or spend your mined crypto, you’ll owe capital gains tax on any increase in value since the day you received it.

This means mining creates two taxable events:

1. Income Tax: Due when you receive the coins
2. Capital Gains Tax: Assessed when you dispose of them at a profit

Accurate tracking is essential. The FMV on the day you receive each reward becomes your cost basis for calculating gains or losses later.

Capital Gains and Losses on Mined Crypto

Once mined, your cryptocurrency is considered property by the IRS and is treated as a capital asset. Any disposal of your mined crypto—whether selling for cash, trading for another coin, or using it to buy goods or services—creates a taxable event and must be reported. The IRS treats all of these events as sales for tax purposes.

How to Calculate Capital Gains or Losses

Subtract your cost basis (the FMV on the day you mined it) from the amount you received when disposing of the crypto.

• If the result is positive, you’ll pay capital gains tax on the gain.
• If negative, you’ll deduct the loss, which will offset other capital gains or reduce your taxable income.

Examples

• You mined Bitcoin worth $1,500 and sold it a few months later for $2,000. You owe tax on the $500 capital gain.
• You mined Ethereum worth $2,200 but sold it 3 months later for $1,600. You report a $600 capital loss.
• You mined Litecoin worth $800 and later traded it for Ripple valued at $1,000 at the time of the trade. You owe tax on the $200 gain.

Short-Term vs Long-Term Capital Gains

How long you hold your mined crypto matters.

• Short-term gains (held less than one year) are taxed at your regular income tax rate.
• Long-term gains (held more than one year) qualify for lower tax rates: 0%, 15%, or 20% depending on your income.

Holding mined crypto for over a year lowers your tax rate. Therefore, it’s important to accurately track the exact dates you receive and dispose of mined coins. Working with an expert cryptocurrency CPA will simplify recordkeeping and help ensure accuracy.

For a deeper dive on capital gains and losses for cryptocurrency, see our complete Cryptocurrency Tax Guide.

Hobby vs Business Mining

The IRS classifies crypto mining as either a hobby or a business, each with distinct tax rules. How you’re classified affects how you report income and whether you’re permitted to deduct mining expenses. If you’re mining at scale or earning consistent profits, consider setting up a formal business to reduce tax liability.

Mining as a Hobby

Hobby miners report income as “Other Income” on their Schedule 1 of Form 1040. They can’t deduct any mining-related expenses, so all mining income is fully taxable.

Mining as a Business

Business miners report their income on Schedule C if they’re operating as sole proprietors. Mining income from LLCs, S-corps, or other entities is reported through those structures, each with its own filing rules and tax implications.

Business miners are allowed to deduct mining-related costs. These deductions lower taxable income, but don’t eliminate self-employment tax, which applies if you’re a sole proprietor, single-member LLC, or a member of certain kinds of partnerships.

If you mine at scale or plan to grow, forming a formal business will potentially reduce your tax burden. Get advice from a business structure consultant who is familiar with crypto to assist you in choosing the right entity based on your goals and state laws.

IRS Business Criteria

The IRS considers factors like consistency, profit intent, and scale to decide if your mining qualifies as a business. Regular miners who keep detailed records and treat mining as a bona fide operation usually meet the business criteria. Occasional or side-activity miners typically fall under hobby status, which means no expense deductions are allowed.

Maximize Your Mining Deductions

Mining operations come with major overhead. Many of those costs are tax-deductible if you operate as a business. For a closer look at general small business write-offs, see ‘Tax Deductions’ in Top 11 Money-Saving Tax Strategies for Small Business Owners.

In addition to general write-offs, you’re allowed to deduct industry-specific expenses tied directly to your mining operation.

• Electricity and Infrastructure: Deduct only the portion of electricity used for mining. Keep detailed logs or use a separate meter. Costs for upgrades like new circuits, panels, or ventilation tied to your mining setup are also deductible.
• Depreciation: Deduct the cost of rigs and other hardware through depreciation. Use Section 179 to deduct the full cost in the year of purchase, or spread it over several years using MACRS.
• Home Mining Space: Deduct part of your rent or mortgage interest, utilities, and maintenance based on the square footage used exclusively and regularly for mining activities.
• Repairs and Maintenance: All costs for fixing and maintaining your rigs are fully deductible with records.
• Software and Mining Pool Fees: You can deduct subscription fees for mining software and pool participation.
• Operating Losses: If your mining expenses exceed income, you have a net operating loss (NOL). Use it to offset crypto gains first, then apply the rest to other income or future years.

Top Tip: Track everything. Keep receipts. Separate personal and business use for mixed-use items like internet and power bills. Good records support your deductions and protect you during an audit.

Special Cases

Here are some strategies to handle a few special situations you might face.

• Pre-Market Coins: If you mined coins before there was an established market value, you’ll have no clear fair market value for your cost basis. The IRS typically defaults to a $0 basis, but consult a crypto tax professional.
• Staking Rewards: Staking income (from proof-of-stake networks) is taxed like mining. You owe tax at the time rewards are received.
• Unsold Mined Coins: Income tax is due when coins are mined, not when they’re sold. A good practice is to set aside cash or stablecoins in advance to cover the tax bill.
• Mining Pools: Payouts are taxable when received, even if they’re small or frequent. Track FMV at the time of each deposit to report income accurately.

Keep Detailed Records for Every Mining Activity

Accurate records are essential for reporting income, calculating gains or losses, and claiming deductions as a business. Your cost basis is locked in the moment you receive the reward. Missing even small details can lead to reporting errors or potential IRS problems.

All miners must track:

• Date, time, and amount of each mined coin
• Fair market value (FMV) in USD when you take control of the coin
• Wallet addresses used for mining payouts
• Dates, times, and USD values of any sales, trades, or conversions
• Pool income distributions (if applicable)

If you’re mining as a business, also keep:

• Receipts for equipment and software
• Utility bills and estimated mining electricity use
• Repair and maintenance costs
• Hosting fees and hash rate logs (especially if you’re in a mining pool, for taking your share of the rewards)

The IRS expects thorough documentation whether you mine as a hobby or a business. Every transaction counts no matter how small, so document everything.

Tax Forms for Crypto Miners

The forms you file depend on whether you mine as a hobby, a business, or through a pool. Here’s what most miners use:

• Form 1040 + Schedule 1 is used to report total taxable income, including mining rewards.
• Schedule C reports income and expenses if you mine as a sole proprietor or single-member LLC.
• Schedule SE calculates self-employment tax on mining profits.
• Form 8949 + Schedule D report capital gains or losses when you sell, trade, or spend your mined crypto.
• Form 4562 reports depreciation on eligible mining equipment.
• 1099s are issued by some pools or exchanges if payouts are over $600.

Mining Tax Deadlines and Estimated Payments

Mining profits must be reported on your annual tax return, due by April 15 each year. If you expect to owe more than $1,000 in total tax, the IRS requires quarterly estimated payments submitted with Form 1040-ES.

Miners with fluctuating income should know about the IRS safe harbor rules. These rules help avoid underpayment penalties even if your quarterly estimates aren’t exact. You’ll meet safe harbor if you pay:

• 90% of the current year’s total tax, or
• 100% of last year’s tax liability (110% if your adjusted gross income was over $150,000).

Missing payments or failing to report your mining income can lead to penalties, interest, or even criminal charges for tax evasion. Consider working with a crypto tax expert to avoid surprises and ensure accurate filings.

How the IRS Tracks Unreported Crypto Mining Income

The IRS is actively pursuing crypto tax enforcement. It uses both legal tools and advanced technology to identify unreported income.

John Doe Summonses

The IRS uses John Doe summonses to compel crypto platforms to share user data for accounts with over $20,000 in transactions. IRS isn’t targeting the platforms—they’re targeting unknown users who may have failed to report crypto income.

Enforcement Letters

The IRS sends warning letters to taxpayers suspected of underreporting. These include Letters 6173, 6174, and 6174-A, which range from warnings to requests for clarification or amended returns. Ignoring these letters significantly increases your audit risk.

Blockchain Surveillance and Data Matching

The IRS uses blockchain analysis tools to track wallet activity even across pseudonymous addresses. These tools connect wallets to real identities using exchange records.

They also use data matching to compare your return against any crypto 1099 tax forms submitted by exchanges and payment platforms.

1099-DA for Crypto Brokers

As of 2025, brokers must report crypto transactions using the new 1099-DA form. This includes wallet addresses, gross proceeds, and gain/loss data.

Haven’t Reported Past Mining Income?

If you mined crypto but didn’t report it, you’re already on the IRS’s radar. Your best option is to fix it now, before you receive a letter. A qualified crypto CPA can help you amend past tax returns and potentially avoid penalties.

Why Crypto Miners Face Higher Audit Risk

Crypto miners are under increased IRS scrutiny because mining income is difficult to track and report and easy to get wrong.

• Frequent payouts, fluctuating prices, and variable transaction types make it difficult to track FMV and cost basis accurately.
• Large electricity bills and hardware write-offs raise red flags if you don’t report matching income.
• Poor recordkeeping is a common issue, especially for miners who started casually or stopped tracking wallet histories.
• Misclassifying mining as a hobby instead of a business can lead to penalties and disqualify you from valuable deductions.

The IRS treats mining as high-risk. Working with a crypto CPA helps you stay fully compliant and reduces the chance of an audit.

State Tax Breaks for Crypto Mining

Some crypto-friendly states offer tax breaks for mining operations, like sales tax exemptions on electricity or equipment. You may qualify if your setup meets certain thresholds. Be sure to check your state’s local incentives to avoid missing out.

Crypto Tax Software

Tracking every mining reward, sale, and transfer manually is nearly impossible. Crypto tax software helps automate the process by syncing with your wallets and exchanges, calculating gains and losses, and generating the right IRS forms. Working with a crypto-savvy CPA alongside software helps you ensure everything is accurate and compliant.

Crypto Tax Peace of Mind Starts With a CPA

Crypto mining taxes are complex, but knowing the rules helps you steer clear of IRS scrutiny. Whether you mine as a hobby or a business, keeping accurate records and reporting all activity on time is essential.

Partnering with a crypto-savvy CPA and using reliable crypto tax software makes the process easier. Stay proactive to lower your audit risk so you can keep mining crypto with full peace of mind.