Bitcoin is the most popular crypto in the world, used for purchasing goods, services, and even other cryptos. Since cryptocurrencies are not under the thumbs of the government or giant financial institutions, Bitcoin being legal can create financial dimensions that never existed before.
With the growing popularity of crypto trading all over the world, including the US, many Bitcoin enthusiasts living in America may wonder, “Are Bitcoins Legal in the US?” That’s why in this article, we’ll discuss Bitcoin’s legality in the US and talk about its tax situation.
Are Bitcoins Legal?
Well, the fact is it’s not “illegal” to buy, hold, and sell Bitcoin in the US. However, in the past ten years, regulatory bodies haven’t managed to come up with a singular approach to the challenges of the world’s first crypto. One of the main reasons is that unlike traditional assets, there are multiple layers to Bitcoin, such as mining, trading, etc. that each require unique regulations.
The Internal Revenue Service (IRS), the Commodity Futures Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FinCEN) are just some agencies that have oversight and have declared a policy position regarding Bitcoin.
In 2014, the IRS released Notice 2014-21, announcing Bitcoin as a property. Again, in 2020, the IRS declared that all taxpayers must report their crypto transactions, profits, and losses.
The CFTC announced and clarified in 2017 that Bitcoin is a commodity similar to gold and even issued a strategic plan on Bitcoin and other cryptocurrencies. The objective was to shed light on regulations concerning crypto for people living in the US.
FinCEN also refused to consider Bitcoin as a legal tender in its 2013 guidance. The organization declared that while cryptocurrency is a medium of exchange, it doesn’t comprise all features of traditional currencies. However, according to FinCEN, anyone with proof of residence in the US can trade Bitcoin as long as both parties accept it as the medium of exchange.
In fact, one of the advantages of Bitcoin over other cryptocurrencies is that a vast range of stores and service providers accept it as a medium of exchange. That unique quality makes other cryptocurrencies like XRP, Cardano, and Dash different from Bitcoin.
Over the years, some have expressed concern about people using Bitcoin for illegal purposes. While Bitcoin isn’t as regulated as conventional assets, it has a public ledger where all transactions are registered and linked with personal records.
In other words, you can view people’s transactions and Crypto balances using their wallet addresses. That alone lifts off a great deal of mystery and helps prevent illegal uses of Bitcoin. Of course, there are still many instances that the government cannot easily detect financial crimes.
In terms of IP addresses, there are various software out there you can use to make yourself anonymous. Such systems and software help facilitate the potential misuse of crypto, but Bitcoin can be a double-edged sword like everything else. However, as you know, its benefits far outweigh its drawbacks.
In addition to mining Bitcoin, you can purchase it like any other crypto from OTC trading platforms and exchanges. While Bitcoin is a decentralized currency not issued at any central bank, it’s as influential as some of the top currencies worldwide.
In the early years, people used Bitcoin transactions to avoid paying taxes. But, after a while, the government and other legal authorities began to form regulations around cryptocurrencies, making Bitcoin taxable. For instance, in the US, the IRS classifies Bitcoin as intangible property, which makes it subject to taxes. Similar measures have been taken in other countries as well.
All taxpayers are required by law to report their crypto transactions of any value. If you personally mine or trade Bitcoin required to pay taxes. In addition, using Bitcoins to buy goods or services will also make them taxable.
In case you’re a miner, you have to pay an individual or business income tax on your earned bitcoins. However, if you are buying Bitcoins from somebody else, then those Bitcoins are taxed as an investment. Short-term and long-term capital gains tax applies to Bitcoins held for less and more than a year, respectively.
The IRS’s Notice 2014-21 back in 2014 eliminated a good deal of concern about the question: “Are Bitcoins Legal in the US?” They’re legal, and you can use them to buy goods and services or even exchange them with other coins on the market.
In terms of taxing crypto, there’s no fixed method to determine the fair value during trading and that remains the primary challenge. However, in the future, governments around the world will likely introduce more fine-tuned regulations on Bitcoin and view it as an efficient tool for growth rather than a threat.
All in all, Bit All in all, Bitcoin is a huge potential opportunity for the present and the future. At Secure Digital Markets, we’ll help you with our low-latency software and white glove customer service to get you the best execution prices on your Bitcoin purchases.