How to Report Cryptocurrency Mining and Staking Income on Your Tax Return

How to Report Cryptocurrency Mining and Staking Income on Your Tax Return

So you’ve jumped on the cryptocurrency bandwagon and started mining or staking coins. That’s awesome! But now tax season is here and you’re wondering how to properly report all that crypto income. Don’t worry, I’ve got you covered. Reporting crypto mining and staking income isn’t too complicated once you understand the basics. In this article, I’ll walk you through step-by-step how to report your crypto earnings so you stay compliant with IRS rules.

Overview of Cryptocurrency Tax Rules

First things first – the IRS treats cryptocurrency as property, not currency. That means any time you earn crypto through mining or staking, it’s taxable income. The value of the coins you receive needs to be reported in U.S. dollars based on the fair market value on the date you received them.

Just like with stocks, you only owe taxes when you sell the crypto for a gain or use it to make purchases. But you do have to report when you first receive the coins as income. More on that shortly!

Is Cryptocurrency Mining Considered Self-Employment?

If cryptocurrency mining is just a hobby for you, meaning you do it irregularly for small amounts, then your mining income can be reported as “Other Income” on your tax return. Easy peasy.

However, if your mining activities are continuous and substantial, the IRS considers this a business. In that case, you need to report your mining income and expenses on Schedule C as self-employment income.

Some key factors that determine if your mining is a business are:

• You mine crypto full-time or have invested significant time and expenses into your mining activities
• Your mining yields regular and sizable income
• You have a separate space or area of your home dedicated to mining

If this sounds like you, be sure to report on Schedule C. You’ll also owe self-employment tax on your net earnings.

Step 1: Track Your Crypto Mining and Staking Rewards

The first step is gathering records of all the crypto you received from mining and staking throughout the tax year. Your mining software should provide records of your regular mining payouts. For staking income, check your wallet’s transaction history.

Be sure to note:

• Date each payment was received
• Type of cryptocurrency paid out
• Fair market value in USD on the date paid

This info will be needed to calculate your taxable income.

Step 2: Report Cryptocurrency Mining Income

Here’s how to report your crypto mining earnings:

For hobby mining as “Other Income”

• On Form 1040 Schedule 1, list the fair market value of each cryptocurrency payment received under “Other Income”
• Describe the income as “Cryptocurrency mining income”

For business mining on Schedule C

• Report your total mining income on Schedule C, line 1
• List any related business expenses like hardware, electricity, etc. on Schedule C to reduce your taxable income
• Pay self-employment tax on your net earnings

Step 3: Report Cryptocurrency Staking Income

Reporting staking rewards follows similar rules:

For personal staking as “Other Income”

• On Form 1040 Schedule 1, report the fair market value of staking rewards received under “Other Income”
• Describe the income as “Cryptocurrency staking income”

For business staking on Schedule C

• Report the value of staking rewards on Schedule C, line 1
• Deduct any related expenses on Schedule C
• Pay self-employment tax on your net profit

Step 4: Calculate Cost Basis for Future Gains/Losses

This income reporting is only part of the tax picture. You’ll also need to calculate cost basis, which is the fair market value of the coins when first received. This matters later when you sell or spend the crypto.

Cost basis helps determine your capital gains or losses down the road. Specifically:

• Your gains or losses = Sale Price – Cost Basis
• Gains are taxed at 0%, 15% or 20% depending on income and holding period
• Losses can be deducted to offset capital gains

So be sure to note the fair market value of your coins when first mined or staked. This is your tax cost basis.

Step 5: Report Capital Gains or Losses When Selling

The final step is reporting any gains or losses when you ultimately sell or spend your crypto.

• If you sell at a profit, you’ll have a capital gain
• If you sell at a loss, you’ll have a capital loss

Report these on Form 8949 and Schedule D and include with your Form 1040.

And that’s the gist of how to handle crypto mining and staking income at tax time! Just remember to:

• Track mining and staking rewards
• Report value as income when received
• Note fair market value for cost basis
• Later report capital gains/losses when selling

With this simple approach, you can feel confident you are meeting IRS rules for reporting cryptocurrency. Now go rock out those crypto taxes! Let me know if you have any other tax questions.