When selling Bitcoin and Co, you should not forget the tax. Photo: Inna Vlasova / shutterstock.com
In this article, we will explain what to look for when taxing proceeds related to cryptocurrencies. Do you have to pay tax on profits?
Yes. According to the assessment of the Federal Ministry of Finance (BMF), profits made in connection with crypto currencies may be regarded as income from a commercial enterprise within the meaning of § 15 of the Income Tax Act (EStG), income from employment within the meaning of § 19 EStG, income from capital assets within the meaning of § 20 EStG, income from private sales transactions within the meaning of § 22 number 2 EStG in conjunction with § 23 EStG or other income within the meaning of § 22 number 3 EStG. What exactly the tax classification looks like depends on the individual case. In case of doubt, tax advice can make sense. Unlike shares, no withholding tax is paid when selling cryptocurrencies. The profits must therefore be declared in the tax return.
Note: According to the current opinion of the tax authorities, profits from crypto currencies are taxable. How are cryptocurrencies classified for tax purposes?
That depends on whether you trade cryptocurrencies commercially or privately. In the operational context, units of a cryptocurrency are non-depreciable assets that can be assigned to fixed or current assets. In the private sector, crypto currencies are to be regarded as “other economic asset” within the meaning of § 23 paragraph 1 sentence 1 number 2 EStG. Profits from the sale of coins and tokens are therefore to be classified as income from a private sale transaction. Provided that the period between the acquisition and the sale is not more than one year. After the end of the one-year period, the profits are tax-free. However, the holding period can be extended to ten years if current income is generated by the cryptocurrency. This is the case, for example, if the cryptocurrency is left to third parties for a fee. Further information can be found in the document linked below.
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How high the tax levies on profits from the sale of crypto currencies are depends on the individual tax rate. However, there is an annual exemption limit of €600 for private sale transactions. This means that if the total profit achieved in a calendar year remains below this limit, no taxes will be charged. But beware: The exemption limit of 600 € applies to all private sales transactions. If, for example, you sell works of art at a profit, these will be taken into account. If you exceed the limit by only 1 €, the full personal tax rate applies.
Note: Profits from the sale of cryptocurrencies up to € 600 in a calendar year are tax-free. However, they are offset against other private sales transactions. How do you set the one-year period?
Unlike works of art, digital coins cannot be distinguished from each other. When calculating the one-year period, the question arises as to which coin was in possession for how long. For this reason, it makes sense to use the first-in-first-out method (FiFo) when determining the holding period. So you assume that the coins you bought first will be the first to be sold again. In order to be able to prove the holding times in the event of a tax audit, all transactions should therefore be well documented.
Note: If you hold cryptocurrency for more than a year, you do not have to pay taxes on the profits made. The holding period may be extended to ten years in certain cases. How to calculate the profit?
The profit from the sale of cryptocurrencies results as follows:
Acquisition is the purchase or exchange of a cryptocurrency. The sale constitutes the sale or exchange. This means that the exchange of one cryptocurrency for another can also be controllable if a profit has been made in relation to the acquisition costs. Losses when trading cryptocurrencies can be offset against the profit.
More crypto knowledge: How to create a wallet Are there also taxes when mining?
According to the current opinion of the BMF, mining represents a purchase process. Depending on the circumstances, this can be regarded as private asset management (other income) or commercial activity. In both cases, taxes are due. However, if you only occasionally mine in your private environment and thus earn less than € 256 in a calendar year, you may not have to pay taxes. Here it depends on the consideration of the individual case. Where else are taxes due?
In connection with cryptocurrencies, there are other operations that may incur taxes. These include, for example, staking, lending, initial coin offering (ICO) or airdroping. How exactly the taxation looks like here depends on the individual case. In case of doubt, you should seek tax advice. Where can I get more information?
The issue of taxation of cryptocurrencies is very complex and not conclusively regulated. If you have any questions about the tax return, consumers can contact the Lohnsteuerhilfeverein or a tax consultant. Also helpful is the following linked draft of a BMF letter, which includes, among other things, some application examples for the taxation of proceeds in connection with crypto currencies.
Individual questions on the income tax treatment of virtual currencies and tokens (BMF)
Continue reading: Difference between gross and net?
