How does irs know if you are mining?

The IRS knows that the IRS can detect crypto transactions in different ways, even when investors don't withdraw cryptocurrencies from their wallet and convert them into fiat currencies. To begin with, some cryptocurrency exchanges send Form 1099 to the IRS, alerting the agency that a taxpayer has been trading cryptocurrency. Yes, cryptocurrency miners have to pay taxes on the fair market value of the coins mined when they are received. The IRS treats mined cryptocurrencies as income, just like any other asset such as stocks or Gold in my IRA. When you successfully mine cryptocurrency, a taxable event is triggered.

The fair market value of the cryptocurrency will be added to your other taxable income received throughout the year. Contributing to a retirement plan, such as a 401 (k) plan, IRA or health savings account, can reduce your taxable income and, in turn, save you money.