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1. Crypto Mining’s Profitability Crisis
In November 2025, Marathon Digital Holdings (MARA) revealed a strategic change in its third-quarter financial report. The company announced that it “will sell some of the newly mined Bitcoins in the future to support operating capital needs.”This move highlights the reality that crypto mining is currently facing shrinking profit margins.
Coincidentally, the October 2025 production and operations update released by Riot Platforms (RIOT), another mining giant, showed that a total of 437 Bitcoins were produced that month, a decrease of 2% month-on-month and a year-on-year decrease of 14%, and 400 Bitcoins were sold at the same time.In April 2025, RIOT also sold 475 Bitcoins – this was the first time RIOT sold self-mined Bitcoins since January 2024.
RIOT has long pursued a “HODL” strategy, tending to hold most Bitcoins in order to obtain gains from rising currency prices. However, in the new cycle after the block reward is halved, RIOT has also begun to adopt a more flexible funding strategy.The company’s CEO explained that such a sale could reduce the need for equity financing and thereby limit dilution to existing shareholders.This shows that even leading mining companies that insist on holding strategies must sell part of their Bitcoin output in a timely manner based on market and operational needs to maintain financial health.
Judging from currency price and computing power data, mining profits are constantly being squeezed.At the end of 2025, network computing power climbed to a record high of 1.1 ZH/s.At the same time, the price of Bitcoin fell to around US$81,000, the price of computing power (hash rate) fell below US$35/PH/s, and the median cost of computing power was as high as US$44.8/PH/s. This means that market competition has intensified, profit margins have been compressed, and even the most efficient mining companies have barely reached the break-even point.
Mining companies’ marginal revenue from mining has decreased, while fixed electricity bills and financing costs have remained high.Against this background, although some mining companies have accelerated their shift to AI and high-performance computing (HPC), they still face varying degrees of financial constraints and survival pressure.At this time, efficient tax planning is a key strategy to alleviate financial pressure and support long-term operations.Next, we will take the United States as an example to discuss whether tax planning can effectively reduce the overall operating pressure of mining companies.
2. Tax burden on crypto mining companies: Taking the United States as an example
2.1 Corporate tax framework
In the United States, companies can be divided into two structures: pass-through entities and C Corporations (C Corporations, standard limited liability companies).Under U.S. tax law, pass-through entities pass profits directly to company shareholders and pay tax at the individual level at the personal tax rate, achieving single-tier taxation; while C-corporations first pay tax at the corporate level at a fixed 21% tax rate, and then tax dividends at the individual level, forming double-tier taxation.
To expand, sole proprietorships, partnerships, S corporations, and most limited liability companies (LLCs) are pass-through entities and do not pay federal corporate income tax.The income of the pass-through entity is regarded as personal ordinary income and is reported at the ordinary income tax rate, which can reach 37% (as shown in the figure).
Table 1: 2025 U.S. federal ordinary income tax rates and tax brackets
Cryptocurrency is regarded as property, and the taxable nature of its mining income and sales proceeds remains unchanged, but the actual tax burden may differ due to different taxpayers:
(1) If a crypto mining company is a pass-through entity, it does not need to pay federal income tax, but company shareholders are required to declare personal income tax on their share of profits.Taxes involved in the acquisition and transaction of cryptocurrency include ordinary income tax and capital gains tax.First, for cryptocurrencies obtained by penetrating entities through mining, staking, airdrops, etc., shareholders are required to declare taxes on ordinary income at the personal level (tax rate 10% to 37%).Second, shareholders are also subject to capital gains tax when the pass-through entity sells, exchanges or spends cryptocurrency.If the holding period is less than or equal to one year, the gains are treated as short-term capital gains and are taxed at ordinary income tax rates, ranging from 10% to 37%; if the holding period is greater than one year, the gains are treated as long-term capital gains and enjoy a preferential tax rate of 0%, 15% or 20%, depending on the taxable income (as shown in the figure).
Table 2: U.S. long-term capital gains tax rates and tax brackets
(2) If the crypto mining company is a C-corporation, it will be subject to a unified federal corporate income tax of 21% and state tax simultaneously.Cryptocurrencies obtained by C-type companies through mining, staking, airdrops, etc. will be included in the company’s revenue at their fair value. Capital gains from the sale, exchange or consumption of cryptocurrency (regardless of long-term and short-term) will also be included in the company’s revenue. The company’s profits after deducting its costs and related expenses will be taxed at a federal corporate income tax rate of 21%, and state taxes will be paid simultaneously in accordance with state standards.If a C-type company chooses to distribute dividends to shareholders, it will trigger another tax on the dividend level, forming a double-layer taxation.
2.2 Challenges of multiple tax burdens
In U.S. jurisdictions, large-scale, publicly raised or planned-to-be-listed mining companies, such as MARA, RIOT, Core Scientific, etc., almost universally operate in the form of C-corporations; while small or start-up mining companies are more likely to adopt a through-entity structure.
Different companies have different financing needs, cash retention strategies and tax considerations, resulting in different company structure choices.Crypto mining is a capital-intensive industry and has a strong demand for internal retained earnings during production expansion. The C-type corporate structure is conducive to retained profits and does not immediately pass on tax burdens to owners, reducing the cash outflow pressure caused by owners paying taxes on undistributed profits.Most LLCs adopt a through-entity structure. This kind of LLC can provide early tax flexibility (it can be taxed as a partnership or an S-type company to reduce the tax burden). After growing to a certain scale, it can also choose to reorganize into a C-type company. Therefore, many start-up mining companies use LLC structures in the early stages. As their scale and financing needs increase, they gradually turn to C-type companies.
Even with different corporate structures, crypto mining companies face multiple tax burdens.The operating income of the penetrating entity “penetrates” to the owner level. Miners mining coins are regarded as taxable income, and the value-added generated by subsequent disposals also needs to be declared again. The owner must bear the tax burden continuously in two links.In contrast, C-type companies include the income generated from mining or related businesses into the company’s books, and the company uniformly calculates profits and pays corporate income tax. If the company distributes profits to shareholders, it will again trigger dividend-level taxes.However, through proper tax planning, mining companies can reduce taxes reasonably and legally, turning the original tax burden into corporate competitiveness under the compression of mining profits.
3. Possibility of tax optimization for crypto mining companies
Taking the United States as an example, crypto mining companies can plan a variety of tax optimization paths to achieve tax savings.
3.1 Use mining machine depreciation to optimize current tax burden
The One Big Beautiful Bill Act introduced this year in the United States restored the 100% accelerated depreciation policy stipulated in Section 168(k) of the US Tax Code. The “accelerated depreciation” policy stipulated in Section 168(k) of the US Tax Code allows taxpayers to deduct the entire cost in one go in the year of purchasing fixed assets such as mining machines or servers, thereby reducing taxable income.Originally, the depreciation rate of this discount was set at 100% from 2018 to 2022, but it will decrease year by year from 2023, and is planned to drop to 0% in 2027. The “Big and Beautiful Act” aims to restore and extend this discount, stipulating that eligible assets purchased and put into use after January 19, 2025, and before January 1, 2030, will resume 100% accelerated depreciation.At the same time, the “Big and Beautiful Act” also increases the depreciation limit under Section 179 of the tax law, raising the maximum one-time full deduction for equipment expenses from $1 million to $2.5 million.——This is of great significance to mining companies. The purchased fixed assets such as mining machines, power infrastructure, and cooling systems can be expensed in the first year, directly reducing the taxable income of the year and significantly increasing the current cash flow.In addition to tax savings, the “accelerated depreciation method” is also beneficial to increasing the present value of funds.
It should be noted that when using the accelerated depreciation method, the current year’s cost situation still needs to be considered to avoid loss of profits and subsequent carryover losses.For example, an American mining company will receive US$400,000 in revenue in 2024 and invest US$500,000 in purchasing mining machines.If the company deducts US$500,000 of costs in one go that year, due to its low revenue, it will form a book loss of US$100,000 (NOL, Net Operating Loss) after deduction.Although profits for the current period are negative and no income tax is required, this also means that even if there is still cash flow on the books, the company still cannot withdraw or distribute profits.In terms of tax treatment, NOL carried forward to the next year can only be deducted from 80% of the taxable income in that year.Therefore, it is not wise to blindly use accelerated depreciation in low-profit years.
3.2 Properly plan cross-border structures and capital gains income
Cryptocurrency tax policies vary across jurisdictions.In the United States, whether you sell coins for cash occasionally or trade or operate frequently, as long as a taxable transaction occurs and there is a profit, you need to declare and pay taxes. This tax system design that treats everyone equally and “taxes every profit” puts American local encryption miners under great tax pressure.In contrast, Singapore and Hong Kong have more friendly crypto tax policies.Both places currently do not tax crypto capital gains obtained by individuals and companies from non-recurring investments. As long as the relevant transactions are recognized as non-recurring investment income, investors do not need to pay tax on the appreciation of assets, achieving zero-tax dividends for long-term holdings.Of course, those engaged in frequent transactions or operating businesses still need to pay corporate or personal income tax on their profits.Singapore’s corporate income tax is approximately 17%; Hong Kong’s corporate tax rate is 16.5%.Although frequent traders still need to pay taxes, Hong Kong and Singapore’s tax rates are undoubtedly more competitive than the 21% federal corporate tax in the United States.
Table 3: Comparison of tax rates in the United States, Hong Kong and Singapore
Based on the differences in tax systems in different jurisdictions, U.S. crypto mining companies can legally reduce crypto tax pressure by planning cross-border structures.Take an American Bitcoin mining company as an example. It can set up a subsidiary in Singapore and first sell the Bitcoins obtained from daily mining to the affiliated subsidiary at a fair market price, and then the latter will sell them to the global market.Through the “inside-out” transaction arrangement, the U.S. parent company only needs to pay corporate income tax on the initial mining income, while the Singapore subsidiary’s appreciation profits from holding Bitcoin will have the opportunity to apply Singapore’s policy of not imposing capital gains tax when conditions are met, thereby exempting it from capital gains tax.The tax-saving effect of this cross-border structure design is obvious. Its core is to legally transfer the value-added link of crypto assets from high-tax areas to tax-free or low-tax areas, thereby maximizing revenue retention.
3.3 Reasonably plan the economic substance and tax burden with the help of mining machine hosting-leasing structure
The mining machine hosting-leasing structure is widely used in crypto mining, and its business logic is to separate asset ownership from mining operations and improve the efficiency of allocation of funds and resources.This model forms profit distribution under natural business arrangements, allowing different entities to recognize revenue separately based on their role in the transaction.For example, overseas entities located in low-tax jurisdictions are responsible for purchasing, holding and leasing mining machines, while domestic entities in the United States focus on mining operations and pay rent or custody fees to overseas entities.At this time, equipment gains obtained by entities in low-tax jurisdictions may be subject to lower tax rates.Although the mining machine hosting-leasing structure itself is not created for tax purposes, it has a real business background, which provides certain room for cross-border tax planning.
Of course, adopting this structure within the same entity must also meet certain compliance prerequisites.For example, overseas leasing entities must have economic substance and truly hold mining equipment assets, and the rent must be priced based on the arm’s length principle, that is, the rent must be within a reasonable market level, etc.
4. Summary
Mining profits continue to decline under the influence of multiple factors, and global crypto mining is quietly entering a new industry cycle.At this turning point, tax planning is no longer just an optional tool at the financial level, but is expected to become a way for mining companies to maintain capital health and enhance their competitiveness.Mining companies can combine their own business characteristics, profit structure and capital investment, and on the premise of ensuring that various arrangements comply with regulatory and tax law requirements, carry out systematic tax planning, turn tax burdens into competitive advantages, and lay the foundation for long-term stable development.
