How Do You Pay Taxes on Crypto Mining? What Records Do You Need to Keep?

Tax Treatment of Crypto Mining Income

1. Cryptocurrency mined is treated as ordinary income by tax authorities in many jurisdictions, including the United States, Canada, and the UK.

2. The fair market value of the coin at the moment it is received into the miner’s wallet constitutes taxable income.

3. This valuation applies even if the miner does not sell or transfer the asset immediately after receipt.

4. Miners must report this income on their annual tax return using the applicable income category—often “self-employment income” or “miscellaneous income.”

5. In some countries, mining rewards are subject to both income tax and social security contributions if classified as a trade or business activity.

Deductible Expenses for Mining Operations

1. Hardware acquisition costs—including GPUs, ASICs, and cooling systems—may be depreciated over time under capital allowance rules.

2. Electricity expenses directly tied to mining operations are fully deductible when properly documented and allocated.

3. Internet service fees, hosting fees for remote rigs, and maintenance contracts qualify as operational expenditures.

4. Home office deductions apply only where a dedicated, exclusively used space serves mining purposes and meets local regulatory thresholds.

5. Software licensing fees for mining pools, monitoring tools, or firmware upgrades are recognized as legitimate business costs.

Recordkeeping Requirements for Miners

1. Timestamped wallet transaction logs showing each block reward received, including date, time, and network confirmation number.

2. Screenshots or API exports from mining pool dashboards listing daily payouts, hash rate contributions, and fee deductions.

3. Itemized electricity bills with usage breakdowns, ideally cross-referenced with rig uptime logs or power meter readings.

4. Receipts and invoices for hardware purchases, repair services, and infrastructure upgrades, annotated with deployment dates.

5. Exchange deposit records linking mined coins to specific wallet addresses, preserving chain-of-custody evidence for audit readiness.

Capital Gains Implications Upon Disposal

1. When mined crypto is later sold, traded, or spent, a second taxable event occurs based on the difference between disposal price and original cost basis.

2. Cost basis equals the fair market value reported as income at the time of mining—not zero or nominal value.

3. Holding periods begin on the day the coin is credited to the miner’s wallet, determining short-term versus long-term capital gains treatment.

4. Each disposal must be tracked individually, especially when multiple wallets or exchanges are involved across different timeframes.

5. Losses from disposal can offset other capital gains, but wash sale rules do not currently apply to crypto assets in most jurisdictions.

Frequently Asked Questions

Q: Do I need to report mining income if I never converted the coins to fiat?A: Yes. Tax liability arises upon receipt, regardless of whether the coins are held, swapped, or used for payments.

Q: Can I deduct the full cost of my mining rig in the year of purchase?A: Not universally. Some jurisdictions allow immediate expensing under small business provisions; others require depreciation over three to five years.

Q: What if I mine through a pool and receive irregular, fractional payouts?A: Each payout triggers its own income event. You must record every instance separately, calculating fair market value using reliable exchange data at the exact timestamp.

Q: Is cloud mining income taxed differently than self-hosted mining?A: Generally no—the economic substance determines classification. If you retain beneficial ownership and control over rewards, it remains taxable mining income, not passive investment income.