Is crypto mining a business or hobby for tax purposes in 2025?

Cryptocurrency mining income is taxable regardless of whether it is classified as a business or hobby. However, the classification significantly affects your deductions and tax obligations.

Mining as a business (Schedule C):

If mining is your trade or business, you report income and expenses on Schedule C. You owe self-employment tax (15.3%) on net profit. You can deduct: electricity costs, mining hardware (depreciation or Section 179 expensing), internet costs (business portion), cooling systems, rent for mining space, and repairs/maintenance.

The IRS considers factors like: profit motive, time and effort spent, whether you depend on the income, and whether you have expertise in the activity. Running a mining rig 24/7 with significant investment in hardware typically qualifies as a business.

Mining as a hobby:

Hobby income is reported as other income on Schedule 1. Under the TCJA, hobby expenses are not deductible (the miscellaneous itemized deduction was eliminated). This means you pay tax on gross mining income with no offset for electricity, hardware, or other costs. This is a much worse outcome than business classification.

When is mining income recognized? Per IRS Revenue Ruling 2023-14, crypto received through mining is income at fair market value when you gain dominion and control (typically when the coins appear in your wallet). For proof-of-work mining, this is when the block reward is received. You must report this income even if you do not sell the crypto.

Cost basis: Your cost basis in mined crypto is the fair market value at the time of receipt (the amount you reported as income). When you later sell the crypto, you pay capital gains tax only on the difference between the sale price and this basis.

Self-employment tax planning: If you mine as a business, consider forming an S-Corp once profits are substantial to reduce self-employment tax through the salary/distribution split strategy.