united-states virginia cryptocurrency money-laundering money-service
Is it legal to trade bitcoin for cash in Virginia, USA?
<p>I was wondering if trading bitcoin for cash (for example payments on Apple Cash, Venmo or Zelle) is legal in Virginia (USA) or not. I would like to know before I start selling some of my bitcoins.</p>

<p>The short answer is that a few individual trades would be legal (e.g. if you sell some to a friend), but doing so on a regular basis for profit (e.g. offering a sale price and a bid price to all comers) would not unless you get the appropriate licenses and comply with relevant laws. Doing this is onerous.</p>

<p>Any kind of "<a href="https://www.fincen.gov/money-services-business-definition" rel="nofollow noreferrer">money services business</a>" is subject to federal regulation. The federal definition is a business trading more than $1,000 per day, so in theory as long as you keep below that you wouldn't have to worry about federal law. In practice you might find yourself having to prove to the Feds that you have not exceeded the threshold on any day in the past.</p>

<p>There is also a <a href="https://moneytransmitterlaw.com/state-laws/virginia/" rel="nofollow noreferrer">separate licence regime</a> for Virginia which you must also comply with.</p>

<p>Finally, if you sell Bitcoins to someone when you have a reason to suspect that they are planning to do something illegal with them then you are breaking the law.</p>

<p><strong>Edit:</strong> While its not strictly a legal issue, some people who have traded Bitcoins outside of recognised exchanges have had their bank accounts closed because the activity has triggered the bank's money-laundering detectors.</p>

<p><strong>Edit 2:</strong> All the above applies if you are trading directly with people who you found on something like <a href="https://localbitcoins.com/" rel="nofollow noreferrer">localbitcoins.com</a>. Trade via an exchange such as <a href="https://www.bitstamp.net/" rel="nofollow noreferrer">BitStamp</a> is legal: all the AML and KYC regulations are their problem not yours. You merely have to provide the necessary identification to open an account.</p>

<blockquote>
  <p>Is it legal to sell/Trade Bitcoin for Cash in USA, Virgina?</p>
</blockquote>

<p>Yes. Your mention that you want to "<em>start selling some of [your] bitcoins</em>" conveys that you have owned the bitcoins for a while. That falls short of the meaning of <em>money business service</em>, where a license would be required. See also <a href="https://law.stackexchange.com/questions/42533/when-does-it-become-illegal-to-exchange-bitcoin-for-cash/42539#42539">this answer</a>.</p>

<p>From legal and practical standpoints it might be safer for you to cash out via an exchange (meaning a licensed one), especially if you intend to sell many bitcoins. The exchange and/or your bank might gather from you information for purposes of KYC (Know Your Customer) compliance.</p>

<h2>You will also need to file your taxes properly</h2>

<p>The IRS and state will view this as a sale of a security.  Any capital gain must be <a href="https://www.irs.gov/newsroom/capital-gains-and-losses-10-helpful-facts-to-know-0" rel="nofollow noreferrer">reported on your taxes</a>, i.e. your normal Form 1040 that you file before April 15. </p>

<p>You'll need to add Schedule D to your tax forms. </p>

<p>Also, if this is a significant surge of income (e.g. more than a whole paycheck), you may need to <a href="https://www.irs.gov/forms-pubs/about-form-1040-es" rel="nofollow noreferrer">prepay withholding</a> in that quarter, with one of the coupons in Form 1040-ES. </p>

<p>For best advantage, you need to be able to state the date you obtained the Bitcoin, the USD cash value you paid for it (cost basis),  the date you sold and the cash value you got.  If you bought the Bitcoin in several batches, then each batch is a separate "lot" requiring a separate line item.*</p>

<p>That is because you pay very different tax rates on securities you held more than a year vs less than a year.  </p>

<h2>Refusing to report income is what they got Al Capone for</h2>

<p>So you have to report the capital gains,  or it's tax fraud.   </p>

<p>If you don't have all the info, well, if you don't have records of your <em>cost basis</em>, then you report cost basis of 0 and pay tax on the entire sale amount. If you don't have records of the purchase dates, then you put "unknown" and report it as a short term capital gain, at the much higher tax rate. </p>

<p>This applies to each tax lot individually. So if 4 tax lots made money and 7 lost money, you must report the 4 that made money. </p>

<p>It is not essential to report capital losses, but you waste an advantage if you do not; it would be like throwing away 10-33% of the losses.  Capital losses can offset (pay the taxes for) future capital gains, plus $3000 of regular income, and if you don't have enough capital gains this year, they can be carried forward to a future year when you do. </p>

<hr>

<p><strong>Tax lot example</strong>.  Suppose you bought 3 BTC on January 2018 and 1 BTC on July 2018.  You sell 1 BTC on February 2019 and 3 BTC on December 2019. Which is which? </p>

<ul>
<li>You can call that 2 tax lots, but the 1 BTC transaction only holds the Bitcoin for 7 months, so you pay the higher short term capital gains tax rate.   </li>
<li>Or you can handle it FIFO, and then you get 3 tax lots: 1 BTC for 13 months, 2 BTC for 23 months and 1 BTC for 17 months.  More complicated, but all long term capital gains.  </li>
</ul>

<hr>

<p><strong>Capital loss example</strong>.  Suppose you got creamed in DogeCoin in 2017, suffered a $20,000 loss, never reported it on your taxes, but still have the docs.  Suddenly you realize.  So you </p>

<ul>
<li><a href="https://www.irs.gov/forms-pubs/about-form-1040x" rel="nofollow noreferrer">amend your 2017 taxes</a> to take that capital loss of $20,000.  You didn't have any other capital gains that year, so you deduct $3000 off your income, reducing your 2016 tax, and roll the $17,000 loss to 2018.  IRS sends you about a $650 check, with interest.  </li>
<li>amend your 2018 taxes, ditto ditto $14,000. </li>
<li>ditto ditto all your state taxes.  </li>
<li>In 2019 you have $12,000 of gains on your Bitcoin sale.  The $14,000 wipes out your $12,000 gains, so you pay no tax on them (you paid the tax in 2017). And you take the remaining $2000 off general income. </li>
<li>No tax on the BTC sale, and 4 checks show up totaling nearly $2000. Not bad!  I love <a href="https://www.irs.gov/forms-pubs/about-form-1040x" rel="nofollow noreferrer">the 1040X</a>! </li>
</ul>
