To beat the IRS, you need a legal team that understands the IRS.

Crypto mining and taxation

On Behalf of | Aug 12, 2022 | Cryptocurrency Issues & Audits

Mining cryptocurrency is an interesting way for some Georgia residents to make money, but it has an unclear and complex tax treatment. The IRS has not specified how and when it becomes taxable, which is important to know.

Crypto mining

Mining crypto is a resource-intensive process that requires advanced computers working to solve mathematical puzzles. Mining consumes a lot of electricity as well as expensive hardware, but miners are compensated by earning cryptocurrency tokens or coins. In a recent case, a couple began a dispute with the Internal Revenue Service because they disagreed with the timing of the taxation on their mining gains. The IRS asserted that they should be taxed when they mine the crypto, while the couple argues that there should be no taxes due until and unless they sell the crypto for dollars.

Ramifications

The dispute has wide-ranging potential impacts on the crypto industry. It is not clear whether the coins should be treated as income and taxed right away, or treated as property and taxed when sold. If mined crypto counts as income, then miners will be forced to pay taxes on coins even before they sell them for cash they can use to pay the tax. On the other hand, if taxes are due only when the miners sell, the miners can avoid taxes indefinitely simply by holding onto their mined coins and then selling at a later date to minimize taxes due. For example, they could sell in a year when they had significant business losses, which would be tax-deductible and offset the taxes from crypto sales.

Until the IRS clarifies the tax status of mined coins, people have no way to know if they are following the law.