As a Bitcoin Miner in the US, You Should be Aware of these Laws
Ignorance of the law is no defense in a court of law.
You have probably heard that line countless times from legal dramas on TV. Yes, the law indeed operates on this assumption.
Even obscure laws that barely make the headlines?
Absolutely. Laws that relate to Bitcoin mining fit into this category. You may hear a lot about the pioneer virtual currency, but few specifics in the way of actual legislation.
Well, that is precisely the point of this article. If you are looking to mine Bitcoin in the USA, it is natural to be curious about laws relevant to your enterprise.
The relative youth of this innovation makes the legal landscape a fascinating study topic.
Is it legal to mine Bitcoin?
Yes, it is absolutely legal to set up mining rigs within the USA and Canada. Bitcoin mining simply involves the use of personal or institutional machinery to validate Bitcoin transactions.
If your equipment is powerful, and power costs minimal, you can harvest profits from your operation.
However, Bitcoin mining using personal PCs is not viable anymore; hence the presence of companies like VBIT Technologies that make mining simpler for you.
Specific Bitcoin Regulations You Need to Know
- For mining, the rule of thumb is that if you can possess crypto where you live, then you can mine and receive mining proceeds as well. At the moment, there is no state with an active ban on Bitcoin possession or mining in the USA or Canada.
- IRS Notice 2014-21, Guidance on Virtual currencies. The IRS taxes Bitcoin as property. Individuals who own cryptocurrencies have to keep accurate records and pay capital gains on profits made.
- Filing income taxes on Bitcoin held as an investment; Use Schedule D of IRS Form 1040 and Form 8949 for disclosure.
- Deal exclusively with Bitcoin exchanges that comply with Federal regulations on Money Service Businesses (MSBs).
- Bitcoin futures, options, and other derivative products fall under the regulations of CFTC that guard against market manipulation.
- You can bequeath Bitcoin to your beneficiaries as part of a will because it is a valuable asset. However, existing legislation does not capture the essence of virtual currencies in succession. Therefore, instructions to a personal representative or trustee have to be precise and detailed to include all relevant information.
- An attempt at a national regulation of cryptocurrencies called the Regulation of Virtual Currency Businesses Act proposed by the Uniform Law Commission (ULC) with the support of the American Bar Association (ABA) came forward in 2017 but has not since had meaningful progress.
Capital Gains Taxes from Bitcoin Mining
Since Bitcoin has the designation of a property under IRS guidelines, you have to report capital gains for tax purposes.
But what are capital gains? You may wonder.
Capital gains simply mean profits you make from your investments in contrast to ordinary income. Commodities, assets, and securities yield capital gains and, by extension, capital gains taxes. Therefore, profits from your mining fall under capital gains.
The IRS enforces taxes through taxable events. The following are Bitcoin taxable events under American law:
- Selling Bitcoin for fiat.
- The exchange of Bitcoin for other cryptocurrencies is a taxable event as well.
- The use of cryptocurrency for purchases and payments is a taxable event.
- Mining income and income from hard forks also fall within the scope.
The IRS taxes Bitcoin as property. Therefore, mining crypto, for instance, elicits a taxable event if you make capital gains as a result of the activity.
As you use the coin, never get the thrill to get over your head. It is the wiser option to file taxes appropriately then take advantage of deductions available.
Trying to wrestle with a competent agency like the IRS is probably not in your best interests.
Always file taxes, even if you owe zero. Failure to file can result in fees, interest, penalties, and even jail time, depending on the severity of your situation. In 2019, the IRS began sending over 10,000 warning letters to US taxpayers who hold crypto.
Similarly, the Canadian Revenue Agency (CRA) considers virtual currency transactions taxable. If you live in this jurisdiction, file your capital gains as well. Losses help to offset your tax obligations, and you can use them where applicable.
State-Specific Legislation That Bitcoin Holders and Miners Must Be Well Versed With
Most states and even federal agencies have done little formal rulemaking with regards to cryptocurrencies. Therefore, the mood among most states is that of indifference. However, none currently bans the ownership and sale of cryptocurrencies.
Notably, states like New Hampshire have licensing laws necessary to trade Bitcoins legally. New York passed some restrictive crypto laws that saw many crypto startups exit this market.
New York, the Empire State, enacted the “Bit License” requirement in 2015 much to the chagrin of crypto entrepreneurs. This licensing requirement lumped virtual currency operators, together with traditional money operators who cope better with overly restrictive regulations. New York and New Mexico are two states with notably hawkish positions on crypto.
Wyoming is an example of a state that has taken a favorable approach in a bid to boost its local economy. The state has passed laws that exempt Bitcoin from property taxes and is generally considered one of the friendliest jurisdiction for crypto in the US.
Nevada had a proposal to eliminate taxes on smart contracts and blockchain projects. Colorado has also taken some efforts to promote blockchain technology, while Ohio became the first state to accept state taxes in the form of Bitcoin in 2018.
Connecticut, New York, and New Mexico have Money Transmitter licenses for businesses that facilitate crypto trade. Florida, Kansas, and Delaware have adopted milder regulations on crypto commerce.
Applicable Laws at the Federal Level, what do regulators say?
At the Federal level, the Securities and Exchange Commission (SEC) has the general mandate to rule on the status of Bitcoin.
Other important agencies are the Financial Crimes Enforcement Network (FinCEN) and the Commodity Futures Trading Commission (CFTC).
The SEC has taken the view that Bitcoin is a medium of exchange. This definition, though ambiguous, serves its purpose for an invention with multiple market functions.
The CFTC has designated Bitcoin as a commodity in the USA, hence the creation of Bitcoin futures for trading. Bitcoin enthusiasts would rather think of it as a currency, but it was a long shot for Federal Agencies to read from the same script.
The FINCEN has no issues with Bitcoin used to purchase well-natured goods and services. In 2013, the FBI closed down the now infamous site, Silk Road, which facilitated the exchange of all kinds of products, including illegal items like drugs.
This seizure was initially a blow to Bitcoin’s reputation, but the publicity turned out to be positive. Trading using Bitcoin does not violate any of FINCEN’S regulations as long as it does not facilitate trading in contraband items or money laundering.
Bitcoin commerce is thriving in the US. Money Service Businesses (MSB) that transact more than $1,000 in Bitcoin have to register in individual states to operate smoothly. For instance, Alabama requires anyone engaging in the business of monetary transmissions, which includes virtual currencies under the Alabama Monetary Transmission Act, effective August 2017, to obtain a license from the state.
Similarly, California sought to introduce such licensing requirements through the “Uniform Regulation of Virtual Currency Business Act” in February 2019.
To Cap it Up
In the grand scheme of things, the USA is still a relatively free place to own and transact crypto. Living in certain states will obviously put you at an advantage because of avoiding stricter regulations.
It is vital to comply with the relevant laws and do all in your power to have a hassle-free Bitcoin mining and holding experience. Most states seem concerned with regulating Money Transmitting Businesses. This fact is because of the ease of Bitcoin movement without regulation.
Mining is, therefore, mostly smooth, with little regulatory bottlenecks to contend with. As long as the miner engages in a lawful enterprise, this can be a rewarding endeavor. Mining profitably at home is difficult because of a combination of expensive equipment and high-power costs.
Accordingly, external mining solutions are incredibly convenient. With a combination of robust mining and great tax management tips, VBIT Technologies is the perfect ally in this endeavor.
VBit deploys state of the art mining equipment in North America to mine legally and profitably while using natural cooling and cheap electricity.
Invest in their precise mining packages and make impressive capital gains from Bitcoin! Sign up now!