Cryptocurrencies such as Bitcoin, Ether or Ripple are not for cautious investors. The price fluctuations are still enormous, a total loss of the investment is possible at any time. At the same time, Bitcoin and Co. offer many advantages – for example technical protection against counterfeiting. And they have arrived in everyday financial life: with crypto debit cards there is now an easy way to turn the cryptos from your digital wallet into real money. Since 2015, a new form of financing has also been developing with so-called Initial Coin Offerings (ICOs). Startups in particular use ICOs to raise capital for their projects in exchange for virtual currencies or other crypto tokens. In 2018, ICOs raised a double- digit billion amount in investor funds worldwide.
Post from the Tax Office
Few people are likely to blare that out at the top of their lungs. The chorus of tax yes-men becomes even thinner when it comes to the taxation of cryptocurrencies of private investors. Instead, there are many questions in the room. No wonder that in a study , US auditors stated that about 95 percent of their customers are unable to disclose the complete transactions with digital assets.
The hunt for crypto tax evaders has already begun in the USA: the US tax authority IRS (Internal Revenue Service) contacted more than 10,000 American Bitcoin and crypto owners in the USA over the course of 2019 . The IRS letters included instructions on how to pay taxes, interest, and penalties. In October 2019, the IRS presented new official guidance on crypto taxation . In Germany, too, the financial authorities want to target cryptocurrencies and their owners more closely: companies related to cryptocurrencies are to be monitored by BaFin in the future.
If this is already too complicated for you, you can simply outsource all the unsightly crypto tax work. Our partner Blockpit specializes in tax reports for investors and users of blockchain-based assets and is happy to take care of the unwelcome obligatory exercise.
Tax cryptocurrencies correctly
If you buy and sell Bitcoin or other digital currencies privately, this is one of the so-called private sales transactions (PVG) according to Section 23 of the Income Tax Act (EStG). This is also called “speculative business” and the tax return contains the attachment for other income (SO). The exchange of crypto for fiat money (e.g. euros or dollars), the exchange of crypto for crypto and payment with crypto currencies can be controlled.
The profit (i.e. the sales price minus acquisition costs) must be stated in euros in the tax return. In the case of payments in foreign currency, the exchange rate at the time the sales amount is credited applies. You can state the costs for the corresponding transaction in the tax return and deduct them from the profit.
You don’t have to attach proof first, but you should still have a list of the transactions (amount, price, fee and date) in case the tax office asks for it.
When is Cryptocurrency Trading Tax-Free?
Speculative transactions are tax-free up to an annual profit of 600 euros. However, if your profit is more than 600 euros, the exemption limit does not apply and you have to pay tax on the entire profit.
With a holding period of more than one year, the profit does not have to be taken into account for tax purposes. However, the holding period for tax-free trading varies. For example, if you lend a cryptocurrency and receive interest for it, the period is extended to ten years. If you trade a certain cryptocurrency frequently and need to determine the holding period for a certain coin, the FIFO method (first in, first out) is used. The tax office assumes that you sell the coins that you bought first. In the case of the taxable sale, the coins that were in your depot the longest were sold.
Take losses into account for tax purposes
Losses should also be taken into account for tax purposes – this reduces the tax burden.
So far, so clear. But how are realized losses correctly claimed in crypto investments? And how, for example, are private mining or ICOs taxed? “That often depends on the individual case,” says Erik Stephan from the Winheller law firm, who also organizes webinars on the subject of crypto tax returns. A typical question is, by the way, whether one evades taxes if one does not submit a tax return, according to the tax expert.
Zero Risk to the Tax Office
If all of this is too complicated (and lacks legal certainty) for you: Help comes not only from specialized tax consultants – tip: enter “Bitcoin tax consultant” in the Internet search mask – but also from fintechs. Specialized best crypto tax software, for example the Block pit Crypto tax app, makes tax returns easier for you if you own cryptocurrencies. The web-based crypto tax software from the Austrian-German startup promises automatic classification with fast data import and is free of charge for up to 25 transactions in the tax year.
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