Question

How do I account for bitcoin mining and sales?

Forum|Forum|7 years ago
June 4, 2019
1 reply
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There are lots of variations on this question, but I'm still not clear on the best method for accounting for both mining AND sales of bitcoin.
1) It sounds like the sale of bitcoin would be recorded under other income, like the sale of a stock or bond?
2) How is the mining of bitcoin accounted for when entering my return online?
3) Is mining based on how much has been mined to date or how much remains after any sales?
4) What percentage of income from bitcoin should be set aside for taxes?
5) If this is a hobby and I am employed, am I still subject to self-employment tax?

I know that's a lot of questions.  Thanks!

TurboTax Deluxe Online

T

TomYoung

Employee

1. Sales of bitcoin are recorded as the sale of intangible property with a resulting capital gain or loss. The sale is long term or short term depending on your holding period. You use the "Stocks, Mutual Funds, Bonds, Other" interview in TurboTax and tell TurboTax that no 1099-B was received.

2. Bitcoin awarded to you either as fees or for creating a block are recorded as "revenue" on Schedule C. You convert the bitcoin at an appropriate US dollar amount at the time of the award.

3. Mining is simply "revenue" vs. "costs". The actual sale of bitcoin is a separate matter as discussed in 1. above.

4. That's really impossible to say with any precision. Net income reported on Schedule C - revenue minus cost of creating that revenue - is taxed at your marginal "ordinary" income marginal rate. Plus, that net income is subject to Self Employment tax, (Social Security and Medicare), at about 15%. Probably figuring tax at about 25% - 30% for federal purposes would be fine. State tax, if any, is extra.amount

5. Just being "employed" doesn't mean you are not subject to Self Employment taxes. There is a maximum amount of income subject to Social Security, ($127,200), but no maximum income subject to Medicare.

Tom Young