New millionaire through Bitcoin: The cryptocurrency writes a success story. But how many taxes do you have to pay on your new wealth? t-online explains the tax law around Bitcoin and Co.
Anyone who invests in cryptocurrencies needs strong nerves and patience. In return, the chance of high profits beckons. If you had bought a Bitcoin in March 2020, you could have sold it in April 2021 for a profit of 40,000 euros – that is a gross annual salary for many Germans.
Every investor is happy about such profits – but the question quickly arises: What share does the state want to have? Because even if the tax office Bitcoin and Co. not recognized as currency, take a close look at your profits from such deals.
t-online explains when you can make profits from your crypto investments tax have to, how you claim losses from crypto currencies for tax purposes – and cushion something like that.
Do I have to pay taxes on Bitcoins?
Yes, you also have to pay taxes on crypto currencies such as Bitcoin or Ethereum – but only under certain circumstances. Because the BaFin classifies Bitcoin and other crypto currencies not as legal tender a.
“The crux of the matter is that cryptocurrencies are not legal tender, but rather are units of account,” explains Hartmut Schwab, President of the Federal Chamber of Tax Advisors, when asked by t-online. “These are comparable to foreign currencies, so the same principles apply to the buying and selling of crypto currencies by banks as to foreign currency transactions.”
Currently, cryptocurrencies such as Bitcoins fall under the category of a tax law private sale, so § 23 para. 1 sentence 1 no. 2 EStG applies. Profits from trading in cryptocurrencies are treated similarly to profits from the sale of real estate, rare works of art or classic cars, where taxes are only incurred under certain circumstances.
Long holding is worth it
The tax office is interested in profits from Bitcoins and Co. if:
- You sell your coins less than a year after purchasing them
- and if your winnings exceed the exemption limit of 600 euros.
Important: In private sales, there is one Exemption limit of 600 euros. If your profit exceeds this exemption limit, you have to pay tax on the entire amount. So it is not to be confused with the tax exemption of 801 euros for stock transactions.
In addition: The exemption limit adds up all sales that fall under the category of private sales transactions. So if you have already sold a classic car, your allowance has already been used up – and your Bitcoins are therefore taxable.
So here it is worth checking exactly how many Bitcoins you are selling. Because: As long as you keep Bitcoins in your wallet – i.e. your digital wallet – you have to keep them too not taxable. These tax principles apply to all cryptocurrencies – so it does not matter whether you use Bitcoin, Ethereum (more here) or buy or sell Cardano.
When do I not have to pay taxes?
Since Bitcoins are not taxed in the same way as profits from stocks, your profits from cryptocurrencies may be completely tax-free. In this case: when you have your coins over a year hold for a long time and then sell at a profit, you do not have to pay tax on this.
But beware: If you have bought something with the bitcoins in the meantime or have exchanged them for another crypto currency, this rule does not apply to you.
- Example: Anyone who bought a Bitcoin for 4,300 euros in March 2020 could sell it for 44,700 euros in April 2021 – and the profit of 40,400 euros was tax-free. But that only applied if you hadn’t used your bitcoins in the meantime.
“If a cryptocurrency is exchanged for another within a year of purchase, it is a private sale,” says Hartmut Schwab, President of the Federal Chamber of Tax Advisors. The current currency value on the stock exchange applies as the value of the transaction.
In this case, you have generated income with your bitcoins and the Speculation period increases to ten years, explains tax consultant Christoph Juhn in an interview with “Finanzfluss”. If you sell your cryptocurrencies during this time, your profits are again taxable. In professional circles, however, this regulation is quite controversial.
Taxes on lending and staking
The same is true if you do the so-called Staking operate, for example with currencies such as Cardano, or your crypto currencies lend against interest payments. In this case, too, you generate income with your “other asset” – your coins. You also have to pay tax on these profits. However, a different exemption limit applies here than when selling cryptocurrencies.
The interest by lending your coins or by staking, the withholding of cryptocurrencies to receive rewards, are considered as “income from services in the sense of Section 22 No. 3 EStG“. Here one applies Exemption limit of 256 euros in the year, all profits from staking or lending in excess of this amount are subject to tax.
How do I tax bitcoins?
You must report the profits or losses of your cryptocurrencies on your tax return under the Filing SO – for other income – enter. If you only hold bitcoins or have only sold them after a holding period of one year, you are not obliged to state them in your tax return.
The Tax rate for cryptocurrencies is significantly higher than with investment income, for example from stock transactions. The speculation tax in Germany is 25 percent – with Bitcoins and Co., however, the state pulls Your regular tax rate approach. This means: You may also have to pay the solidarity surcharge and church tax on your Bitcoin winnings.
When filing your tax return, you only have to enter the sum first Of your profit specify by selling cryptocurrencies. If the tax office would like to have further data on buying and selling, you have to submit this data later.
Documentation of purchases and sales
For this it is worthwhile to have a Table with your purchases and sales to invest – especially if you own more than one coin or buy cryptocurrencies more often. When filing your tax return, you can then use two methods to tax your sales.
The FIFO method:
With the FIFO method – first in first out – you first sell the coins that you bought first.
- Example: You bought two bitcoins on March 5, 2020 and two bitcoins on March 10, 2020. If you now want to sell three Bitcoins on April 15, 2021, offset these against the two Bitcoins from March 5 and one Bitcoin from March 10.
The LIFO method:
With the LIFO method – last in first out – it is exactly the other way around: Here you first sell the coins or fragments of these that you last bought. Since cryptocurrencies are only tax-free after a holding period of one year, the FIFO method is recommended for the tax return.
Important: If you have decided on a method for your tax return, you must tax all profits from crypto transactions in this way.
Can I deduct my Bitcoin losses from tax?
Yes, you can deduct your Bitcoin losses from tax. However, the same principle applies here as for losses from capital transactions. Here, too, you can, for example, only offset losses from shares with profits from shares.
Bitcoin losses can therefore only be offset against profits that are also classified as private sale business apply – for example with the sale of a property, foreign currency currencies, works of art or crypto currencies.
If you have not made a profit with such goods this year, you can also make the loss without a limit to that years to come transfer. If you then make profits with Bitcoins and Co., the loss of previous years reduces your tax burden on Bitcoin profit.
How does the tax office know about my cryptocurrencies?
It is currently very difficult for the tax office to understand which citizen holds and trades crypto currencies. The largest crypto exchanges are not based in Germany, but in the USA or Malta (You can find an overview here).
The dates are therefore not directly accessible to the tax office. “Since there are not yet any reporting requirements for crypto currencies, the member states do not exchange financial information in a uniform manner,” says the President of the Federal Chamber of Tax Advisors Schwab.
But that could change soon. “The EU and the OECD are working flat out on concepts to record and tax income from crypto currencies,” said Schwab. The goals of these efforts are clear: cryptocurrencies and electronic money should be in the future notifiable be. In addition, European crypto exchanges and wallet providers are to be obliged to use their Identify customers and report suspicious facts.
Will there be a separate crypto tax soon?
The paragraph under which cryptocurrencies currently fall is not designed for the use cases of cryptocurrencies. The exact documentation for customers as well as for the tax office is up-to-date cumbersome and difficult to understand – especially when the currencies are exchanged among each other.
Judges at the Nuremberg Finance Court also expressed one opinion current case doubtwhether the sale of cryptocurrencies actually falls under the scope of private sales transactions. So the taxation of Bitcoins could actually change in the future – especially if investors keep doing it more often than not take advantage of additional investment opportunities.