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It depends on whether you are a hobby miner or a self-employed (business) miner. Here are some of the measures that the IRS provides for determining which camp you are in:
- The manner in which the taxpayer carries on the activity
- The expertise of the taxpayer or his advisors
- The time and effort expended by the taxpayer in carrying on the activity
- Expectation that assets used in activity may appreciate in value
- The success of the taxpayer in carrying on other similar or dissimilar activities
- The taxpayer’s history of income or losses with respect to the activity
- The amount of occasional profits, if any, which are earned
As you can see, there is some amount of subjectivity to the classification. As an example, if you have a full-time custom mining rig, you are probably a business, and if you are randomly doing some mining on an old computer, you are probably a hobbyist. In both cases you will need to report your mined coins as taxable ordinary income and your basis will be the fair market value at the time you receive the coins.
- Income will go on line 21 (other income) of your Form 1040 (US Individual Income Tax Return)
- Expenses directly associated with mining will go on a Schedule A form (Itemized Deductions); miscellaneous subject to 2% of AGI limitation (does not apply in 2018 onward)
- Your income is not subject to the 15.3% self-employment tax (only normal income tax), however you receive fewer and less valuable deductions against your income
- Income and expenses both go on a Schedule C form (Profit or Loss from Business)
- Your income is subject to the 15.3% self-employment tax, though there are more valuable deductions against your income