Hobby or (self-employed) business activities for tax reporting purposes?
In some activities, the taxpayer must identify if the activity is a hobby, business, staker or anything else.
Generally, this is important due to the following reasons:
Income from Mining
Income from Staking
Income from Master nodes
Income from Lending
Income from Bounty Programs
IRS states that a hobby aims for recreation and pleasure. The IRS considers the following criteria to find out if the activity is a hobby or trade or business. Not one but all the below-mentioned factors must be considered.
You carry the cryptocurrency activities in a businesslike way and maintain complete books of accounts.
The time and effort you put in mining activities are with the intention of making a profit.
You depend on this income for your livelihood.
Controlling losses is not in your hands.
You change your methods in order to improve profitability.
You and your advisor have the requisite knowledge to carry business.
You were successful in making a profit by engaging in similar activities in the past as well.
How much profit does the activity made and in how many years?
Do you expect to make a future profit from the appreciation of assets that have been used in the activity?
If the taxpayer is a hobby miner then income received will be treated as ordinary income.
If the taxpayer is a business miner who generates trade income or owns/leases his or her own mining equipment, then the income will be reported as self-employment income.
