<p><strong>Disclaimer:</strong> The following is US specific and I'm not a tax or legal expert of any country, speak to an accountant or lawyer if in any doubt.</p>
<p>From <a href="https://en.wikipedia.org/wiki/Money_laundering" rel="nofollow noreferrer">Wikipedia</a>:</p>
<blockquote>
<p>Money laundering is the process of transforming the profits of crime and corruption into ostensibly &quot;legitimate&quot; assets.</p>
</blockquote>
<p>So, unless the source of the BTC is criminal, it's not laundering money. This may extend to buying from your friend directly if you are trying to help them to avoid paying their taxes.</p>
<p>However, to avoid worry, as both you and your friend sound like you use exchanges already, why doesn't your friend sell their BTC on the exchange, and you buy from the exchange. Fees and margins are quite low and you will have all of the paper work the IRS may require.</p>
<p>As for taxes, yes you should report the $1 as <strong>capital gains</strong> to the IRS in the US, source: <a href="https://www.forbes.com/sites/greatspeculations/2017/02/21/if-you-traded-bitcoin-you-should-report-capital-gains-to-the-irs/#4677df30e3d8" rel="nofollow noreferrer">Forbes</a> and <a href="https://www.irs.gov/newsroom/irs-virtual-currency-guidance" rel="nofollow noreferrer">IRS</a>. Remember you can also claim <strong>capital losses</strong>.</p>
<blockquote>
<p>The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.</p>
</blockquote>
<p>So while I doubt it applies to you, there are other cases where virtual currency isn't regarded as a <strong>capital asset</strong>:</p>
<blockquote>
<p>...when virtual currency is held as inventory or other property mainly for sale to customers in a trade or business, ordinary gains or losses are generally incurred, the IRS said.</p>
<p>Capital gains and losses are taxable and deductible at different rates and amounts than ordinary gains and losses.</p>
</blockquote>
<p>From: <a href="http://www.reuters.com/article/bitcoin-irs/update-3-bitcoins-are-property-not-currency-irs-says-regarding-taxes-idUSL1N0MM1L820140325" rel="nofollow noreferrer">http://www.reuters.com/article/bitcoin-irs/update-3-bitcoins-are-property-not-currency-irs-says-regarding-taxes-idUSL1N0MM1L820140325</a></p>

CC BY-SA 4.0
2020-04-20T02:41:16.287Z
CAUTION: This answer assumes the $10 you paid for the bitcoin is the fair market value and you didn't set an artificially low or high price.
David Schwartz
CC BY-SA 4.0
2020-04-21T23:22:56.520Z
? This answer advises them to use the exchanges, so is the very definition of a fair market value.
weston
CC BY-SA 4.0
2020-04-22T01:36:19.137Z
It advises them to use exchanges and explains the tax treatment but doesn't make clear that the latter is dependent on the former.
David Schwartz
CC BY-SA 3.0
2017-09-10T03:55:51.547Z
2017-09-10T12:00:54.350Z
2020-06-16T11:10:03.350Z
weston
<p>Assume I buy 1 bitcoin from an overseas friend which is USD$10 and I sell it in US for $11.</p>

<ol>
<li><p>is it legal? I am afraid, it would be considered money laundry</p></li>
<li><p>I will not be able to have official receipt from my friend, do I pay tax as for the earning of $1 or sell price $11?  </p></li>
</ol>

CC BY-SA 3.0
2017-09-10T00:17:09.967Z
How did your friend get it?
weston
CC BY-SA 3.0
2017-09-10T01:18:44.777Z
By trading----------
Marco
<taxes>
How I should pay tax if I buy Bitcoin from an overseas friend
Marco
# How I should pay tax if I buy Bitcoin from an overseas friend

(Asked by: username_0 on 2017-09-09)

Assume I buy 1 bitcoin from an overseas friend which is USD$10 and I sell it in US for $11.

1. is it legal? I am afraid, it would be considered money laundry
2. I will not be able to have official receipt from my friend, do I pay tax as for the earning of $1 or sell price $11?

**Tags:** taxes

> **Comments:**
> **username_1**: How did your friend get it?  
> **username_0**: By trading----------  

---

## 1 answers

### Answer by username_1 on 2017-09-10. Score: 0

**Disclaimer:** The following is US specific and I'm not a tax or legal expert of any country, speak to an accountant or lawyer if in any doubt.

From [Wikipedia](https://en.wikipedia.org/wiki/Money_laundering):

> Money laundering is the process of transforming the profits of crime and corruption into ostensibly "legitimate" assets.

So, unless the source of the BTC is criminal, it's not laundering money. This may extend to buying from your friend directly if you are trying to help them to avoid paying their taxes.

However, to avoid worry, as both you and your friend sound like you use exchanges already, why doesn't your friend sell their BTC on the exchange, and you buy from the exchange. Fees and margins are quite low and you will have all of the paper work the IRS may require.

As for taxes, yes you should report the $1 as **capital gains** to the IRS in the US, source: [Forbes](https://www.forbes.com/sites/greatspeculations/2017/02/21/if-you-traded-bitcoin-you-should-report-capital-gains-to-the-irs/#4677df30e3d8) and [IRS](https://www.irs.gov/newsroom/irs-virtual-currency-guidance). Remember you can also claim **capital losses**.

> The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.

So while I doubt it applies to you, there are other cases where virtual currency isn't regarded as a **capital asset**:

> ...when virtual currency is held as inventory or other property mainly for sale to customers in a trade or business, ordinary gains or losses are generally incurred, the IRS said.
>
> Capital gains and losses are taxable and deductible at different rates and amounts than ordinary gains and losses.

From: <http://www.reuters.com/article/bitcoin-irs/update-3-bitcoins-are-property-not-currency-irs-says-regarding-taxes-idUSL1N0MM1L820140325>

> **Comments:**
> **username_2**: CAUTION: This answer assumes the $10 you paid for the bitcoin is the fair market value and you didn't set an artificially low or high price.  
> **username_1**: ? This answer advises them to use the exchanges, so is the very definition of a fair market value.  
> **username_2**: It advises them to use exchanges and explains the tax treatment but doesn't make clear that the latter is dependent on the former.  

---

