Cryptocurrency legal and tax issues

 

Cryptocurrency legal and tax issues

There’s no question that cryptocurrencies are legal in the U.S., though China has essentially banned their use, and ultimately whether they’re legal depends on each individual country.

The question of whether cryptocurrencies are legally allowed, however, is only one part of the legal question. Other things to consider include how crypto is taxed and what you can buy with cryptocurrency.

• Legal tender: You might call them cryptocurrencies, but they differ from traditional currencies in one important way: there's no requirement in most places that they be accepted as "legal tender." The U.S. dollar, by contrast, must be accepted for "all debts, public and private." Countries around the world are taking various approaches to cryptocurrency. El Salvador in 2021 became the first country to adopt Bitcoin as legal tender. Meanwhile, China is developing its own digital currency

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  . For now, in the U.S., what you can buy with cryptocurrency depends on the preferences of the seller.

• Crypto taxes: Again, the term "currency" is a bit of a red herring when it comes to taxes in the U.S. Cryptocurrencies are taxed as property, rather than currency. That means that when you sell them, you'll pay tax on the capital gains, or the difference between the price of the purchase and sale. And if you're given crypto as payment — or as a reward for an activity such as mining — you'll be taxed on the value at the time you received them.

» Learn more: Understanding crypto and taxes