Do I Need an LLC for My Bitcoin Mining Business?

Starting a limited liability company (LLC) for your bitcoin mining business can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a bitcoin mining business, lawsuits can arise from things like accruing debt and experiencing data breaches which leak your employees’ sensitive information.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your bitcoin mining business seem more credible.

Close up on a stylized bitcoin coin on a keyboard

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Should I Start an LLC for a Bitcoin Mining Business?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should form an LLC when there’s any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Bitcoin Mining Business

By starting an LLC for your bitcoin mining business, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide personal liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Bitcoin mining businesses will often benefit from liability protection. Bitcoin mining companies and bitcoin mining rig manufacturers must have liability protection because there is a high level of risk associated with those activities.

If bitcoin mining is a hobby and your mining .00000018 bitcoins a day, it’s likely your risk is low and you can start an LLC later.

Example 1: After purchasing your first ASIC setup, you promise to hire your friend in the near future if they agree to do a bit of free administrative work in the short term. Since you never defined the word “future,” and your promise was verbal, you decide to renege on your promise after a few months, which leads to a breach of contract lawsuit. Since your bitcoin mining business is registered as an LLC, any liability that arises in court (if any) will not be payable by you.

Example 2: When one of your employees trips on and destroys your new ASIC setup, you respond by withholding their monthly salary. Claiming that this is illegal, the employee decides to file an employment law lawsuit against your bitcoin mining company. Since your business is registered as an LLC, limited liability will protect your personal assets if your business ends up accruing significant debt as a result of the lawsuit.

Example 3: You take on a series of large business loans to expand your setup, hoping that this will improve the rate at which you can successfully mine bitcoin. After an unprecedented market collapse, bitcoin loses more than 50% of its value, which makes you panic and terminate your company. Even though your LLC is in debt, that debt will not transfer to you as a result of your limited liability in law.

Example 4: A bitcoin mining company faces a class action lawsuit for supposedly misleading clients. Without an LLC, the business owner could lose all of their personal assets.

LLC Tax Benefits and Options

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business’s net income passes through to the owner’s individual tax return. The net income is then subject to income taxes (based on the owner’s tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

If a business owner believes they’ll be paying themselves a reasonable salary and at least $10,000 in distributions each year, they might benefit from another LLC tax option, the S corporation (S corp) tax status.

When an LLC elects S corp tax, it reduces self-employment and overall tax burden under the right circumstances.

For questions about tax solutions for your bitcoing mining business, we recommend scheduling a free tax consultation.

Tax Benefits Bitcoin Mining

Bitcoin miners must treat their mined currency as income. A bitcoin miner has the choice between reporting income as a hobby or business. If you are running a small operation on your personal computer, it’s probably a hobby. A larger bitcoin mining operation will benefit from writing-off business expenses.

A bitcoin mining business that is structured as an LLC has liability protection, can write-off business expenses, and can save money on self-employment taxes.

Tax Benefits Bitcoin Mining Firms, Consultants, Rig Manufacturers, and Trainers

Other bitcoin mining professionals can save money on taxes by forming an LLC. Mining firms, consultants, and trainers could benefit very much from the tax options an LLC offers, especially the S corporation tax status.

Taxes Benefits Bitcoin Trading

Bitcoin trading profits and losses are treated by the Internal Revenue Service (IRS) as capital gains or capital losses. In an LLC, capital gains can be offset by business expenses. And, as an LLC, bitcoin traders can write-off casualty losses.

Credibility and Consumer Trust

Many types of bitcoin mining businesses rely on consumer trust and recurring purchases. Credibility plays a key role in creating and maintaining any business.

Businesses that form LLCs gain a level of consumer trust and credibility simply by forming an LLC.

Launch Your LLC With Tailor Brands

More than 84% of our readers form their LLC through a specialized LLC formation service like Tailor Brands in order to save time and avoid potential penalties.

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How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

LLCs need business insurance in order to protect their business assets. For a bitcoin mining company, these might be your ASIC setups, hardware, and — of course — bitcoin.

At the same time, all owners of LLCs have limited liability in law, which protects their personal assets against company debt.

Common Situations Business Insurance May Cover for a Bitcoin Mining Business

Example 1: A repairman is visiting your place of business when he trips over a power cable and breaks her arm. She asks that your business pay for her medical care. You can likely get financial help to pay for her treatment from your general liability policy.

Example 2: One of your competitors files a lawsuit against your business for libel, claiming you caused damage to their company through your latest marketing campaign. A general liability insurance policy you carry will pay for your legal defense when your company is accused of libel. It will also pay for the cost of a settlement if you need to settle out of court.

Example 3: A delivery driver is walking into your building from the parking lot when he slips on some ice and breaks his hip. He decides to sue your business, claiming you should have prevented the ice accumulation or marked it to prevent possible injuries. Your general liability insurance policy will pay for an attorney to defend your business as well as cover the cost of a settlement if one is required.

Other Types of Coverage Bitcoin Mining Businesses Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all bitcoin mining companies should obtain:

Commercial Property Insurance

The equipment you use to mine bitcoin requires a significant investment on your part. If you were to lose that equipment in an event like a fire, you would be forced to replace it before you could get back to mining and bringing in income. With commercial property insurance, as long as your property was damaged by a covered event, you should be able to get help from your insurer to replace it.

In addition to the policies outlined above, there are a few other types of coverage your bitcoin mining company may require depending on certain aspects of your operations. Some of these might not apply to you, so be sure to ask your agent which policies are right for your business.

Workers’ Compensation Insurance

If you have employees, your state probably requires you to carry workers’ compensation insurance. The workers’ comp policy you have will ensure that your employees are protected if they are injured performing job-related duties. For example, if an employee gets carpal tunnel, the workers’ comp policy would pay for his or her medical treatment. It would also help pay for his or her lost wages while recovering.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is low profit and low risk, an LLC is likely the better option.

Visit our LLC vs Sole Proprietorship guide to learn more.

At a minimum, you will need general liability insurance and commercial property insurance.

Read our Bitcoin Mining Business Insurance article for more info.

In order to start a bitcoin mining business, you will need your own ASIC setup, which costs around $12,000. If this is too expensive, you could alternatively join a mining pool with other ASIC miners for anywhere between $489 and $3,000.

When it comes to maintenance, your biggest cost will be the electricity needed to mine bitcoin.

Visit our How to Start a Bitcoin Mining Business guide to learn more about the costs of starting and maintaining this business.

Bitcoin and other cryptocurrency mining businesses use a lot of power, which will be the primary ongoing expense.

Learn more about running a bitcoin mining business.

Bitcoin mining businesses make money by being the first to find hashes that are equal to or less than the target hash.

Bitcoin is set up so that the number of Bitcoin awarded halves over time. This occurs roughly every four years, and no more Bitcoin will be awarded once there’s a total of 21 million Bitcoin. As the reward for Bitcoin decreases, the amount earned from transaction fees is expected to increase.

Learn more about starting a bitcoin mining business.

Mining Bitcoin is akin to participating in competitive auditing. Businesses verify Bitcoin transactions by guessing 64-digit hexadecimal numbers, which are referred to as “hashes.” The first business to guess a hash that’s equal to or less than the target hash is awarded Bitcoin and a transaction fee.

Although cryptocurrency mining involves a good deal of complicated technology, starting a mining business requires no technical knowledge. Anyone willing to devote the time and resources to learn the business has the opportunity to succeed.

Learn more about starting a bitcoin mining business.