Do I need to pay crypto self-employment taxes?

If you earn net crypto income of at least $400 from certain activities, you’ll likely owe around 15.3% in self-employment tax. Here are a few examples:

• Bitcoin and crypto mining: Rewards from mining can count as earnings.

• Creating and selling NFTs as a business: If it’s beyond a casual hobby, self-employment tax may apply.

• Getting paid in crypto for goods or services (not a salary): Crypto-based payments are treated as income.

• Running a validator node: Income from validating can push you over that $400 threshold.

Crypto self-employment taxes and safe harbor rules

In most jobs, taxes come out of each paycheck. But if you’re self-employed in the crypto world, you pay quarterly estimated taxes instead. Safe harbor rules shield you from penalties if you meet specific targets, like paying 90% of your current tax liability or 100% of your previous year’s. Different states may follow similar principles but with varying amounts.

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How do I pay crypto self-employment taxes?

In the US, self-employed individuals pay regular income tax plus a 15.3% tax (covering Social Security and Medicare). Because no one is withholding taxes on your behalf, you’ll need to file quarterly estimated taxes using Form 1040-ES. That involves estimating your earnings, factoring in any business deductions, and sending payments every few months. If you overpay, you’ll get a refund. Safe harbor provisions can help you avoid substantial penalties if you pay enough throughout the year.

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How do I report my crypto self-employment income on taxes?

If you’re operating as a sole proprietor, you’ll likely use Schedule C (Form 1040) to document your earnings and expenses. If you have another structure (like an S corp or partnership) you’ll file through the relevant business return, but self-employment earnings typically pass through to your personal taxes. Keep in mind that if you later dispose of mined or earned crypto, you might also face capital gains or losses.

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Business deductions from crypto self-employment taxes

Running a crypto business may let you offset taxable income with certain expenses. Examples include:

• Hardware and equipment: Mining rigs, external storage, or specialized software.

• Utilities and electricity:

  Particularly relevant for large-scale mining setups or servers.

• Office costs: Rent for a dedicated workspace or a portion of home office expenses.

• Software and Internet: Any paid tools that support your crypto operations.

Document these diligently in case the IRS wants proof. Good records make it easier to defend your deductions.

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