The United States approach the regulatory framework for cryptocurrencies through several authorities. Especially the US Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS) are tackling the legal and fiscal treatment of virtual currencies and setting up rules for taxation, AML, licensing and more.

How are my cryptos taxed in the US?

Cryptocurrencies are considered to be property by the IRS and thus are obliged to capital gains tax which apply at the realization of gains, an exchange from coin to coin and from coin to fiat. An event of trading or exchanging cryptocurrencies produces capital gains or losses which are object to a certain tax rate, yet losses can be set off against gains to reduce tax. If losses exceed gains, and therefore produce a negative net capital gain (difference between gains and losses), one can deduct the difference on the tax return up to $3,000 per year.

Capital gains are categorized into short-term and long-term capital gains depending on their holding period. Short-term gains (hold for one year of less) are taxed at normal income rates from 0% to 37%, long-term gains (hold for more than a year) are taxed at a reduced rate of 0%, 15% or 20%. In terms of methodology used for calculation the IRS provides no guidance as long as the chosen method is consistent throughout the return.

In July 2018, the IRS initiated an international taskforce in cooperation with four other countries to tackle the issue of cryptocurrency-enabled crimes. Read more here: Tax authorities enter the market.

How are initial coin offerings regulated in the US?

Initial coin offerings are subject to heavy regulations in the United States. Additionally, the rules vary from state to state starting from no regulations at all to regulations requiring a license for businesses. On a federal level no explicit ban has been expressed, still ICOs are expected to be registered with the SEC, especially if the ICO is to sell or trade securities. Furthermore, ICOs are expected to adhere to AML (anti-money laundering) and KYC (know your customer) practices and are open to legal action if they fail to do so. The SEC moreover issued a clear warning that ICOs may be frauds and present substantial risks for loss or manipulation.

How do US banks handle cryptocurrencies?

A majority of the nation's credit card processors and major banks have banned or limited the purchase of altcoins. The biggest US bank, JPMorgan Chase, defines cryptocurrencies as "risk factors" and sees a new form of competition arising through the increasing appreciation of blockchain technology. Other banks too adopted this view on digital currencies. Still number two and three of the largest banks are engaging in project around the topic. The Bank of America just filed a patent for a cryptocurrency custody system in August this year and multinational bank Citigroup takes a centralized approach to cryptocurrencies, explaining that "the success of distributed ledger technology relies on the use of fiat currencies issued on a Blockchain."

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Disclaimer

The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. For detailed information on crypto regulations we recommend contacting a certified legal advisor in the specific country.

As this blog post referrs to international crypto laws, the content will only be available in English. If you have any questions, please feel free to contact us on one of our social media channels.

Sources

https://www.cnbc.com/2018/01/30/cryptocurrency-and-taxes-what-you-need-to-know.html

https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rates/

https://www.bitcoinmarketjournal.com/ico-regulations/

fortune.com/2018/02/27/cryptocurrency-jp-morgan-risk/

https://news.bitcoin.com/bank-of-america-files-patent-cryptocurrency-custody-system/

https://cointelegraph.com/news/digital-dollars-and-digital-pounds-citi-executive-believes-digitized-fiat-currency-is-key-to-blockchain-adoption