Bitcoin Mining Taxes Illustration

Bitcoin Mining Taxes Guide

Different people act differently when it comes to taxes.

Some pay them religiously, others try to avoid paying them at any cost.

Bitcoin mining taxes are no exception.

In the long run, it’s up to you.

Do you want to be legal or not?

Is your gain big enough to be taxable?

Does your government even care about Bitcoin and other Cryptocurrencies?

Should you even pay the Bitcoin Mining Tax?

This definitely depends on your government and country policies, as well as whether you’re a legal business or not.

It also depends on your government’s ability and willingness to pursue its laws.

There are countries like Denmark, Slovenia, New Zeeland, and Belarus where both Bitcoin trades and capital gains are tax exempt.

On the other hand, the world’s infamous IRS definitely requires most US citizens to pay the taxes on Bitcoin mining.

Taxes on mining cryptocurrency

The IRS policies are clear when it comes to Bitcoin and Cryptocurrency:

  • If you’re a business, you need to pay the taxes for Bitcoin mining
  • If you’re not a business, yet earn $400+ in any given year- you need to pay the taxes for Bitcoin mining

Of course, Bitcoin mining earnings are a bit harder to track, especially if you don’t change them for fiat money(like the US dollar or European EUR).

That’s why many miners in the less tax-demanding countries do not report their mining earnings, even when they exchange them to fiat money.

If you mine just a bit of Bitcoin at the moment, you probably don’t need to pay the taxes.

At least not before converting them to fiat money.

Still, you should take a look at regulations in your own country, or enjoy if it doesn’t have any.

But, many countries don’t have a Bitcoin/cryptocurrency specific tax, yet may tax it as an income or a capital gain.

What is Bitcoin IRA?

As mentioned above, having even a small amount of Bitcoin mined or earned on an exchange will require you to report those earnings to IRS and pay the taxes.

But there is a field where you don’t have to pay taxes on Bitcoin before you retire, and that’s Bitcoin IRA.

The IRA stands for “Individual Retirement Account”, and is a type of savings account where the investment and interest you earn isn’t taxable until you retire.

In the early beginnings of Bitcoin, an IRA account for Bitcoin wasn’t possible, but this changed in 2014 when IRS ruled and categorized Bitcoin as a property.

Of course, saying that Bitcoin IRA is bulletproof and fits everyone’s needs isn’t fair.

The fees are higher, and premature withdrawal can cost you even more.

But if you’re a “HODLer” and in the game for the long term, then Bitcoin IRA can result in tax benefits.

Bitcoin Mining Tax for Individual vs Business

In many countries, doing business as an individual can save you from paying taxes, at least in the beginning.

It’s generally a good rule of thumb for a young entrepreneur, who doesn’t plan as much as a business does, and wants to just test how things are working.

Many start as individuals and convert to business once they get the grasp of the market and the payments start to roll in.

And in countries where you can avoid paying taxes as an individual, many people are doing so. For any business.

Yet I like to think of Bitcoin mining as a serious business, long-term speaking.

And I’m in the process of registering myself as a self-employed individual, which means I’ll get health, social, and pension security for around 15-20% of my Bitcoin mining earnings.

Large-scale miners may need to pay more(in my country if you make more than 50.000 EUR per year), but if you earn that much, then you can also pay more taxes.

Individuals are illegal if making lots of money, yet they make more profit.

Business owners are legal and have tax deductions for expenses like hardware, electricity, and rented space.

Yet the business must pay a tax, so he makes less profit.


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