Destroy taxes cryptocurrencies
Despite unpredictable and sometimes violent price fluctuations in Bitcoin & Co., digital money is finding buyers. But how do any profits have to be taxed? The good news: Capital gains on cryptocurrencies can even be completely tax-free.
Digitization does not stop at currencies either. After Bitcoin, Ethereum or Litecoin, Facebook, for example, wants to launch Libra in 2020. Investors can already trade crypto currencies at various trading venues around the world. However, as with all investments, the question arises as to what the tax liability for profits or losses is like.
First of all: If there is more than a year between buying and selling crypto money, the profits are completely tax-free. For everything else, the following applies: “The Federal Ministry of Finance classifies Bitcoin & Co. just like precious metals as 'other economic goods'. That is why a sale within the speculation period of one year leads to a private gain or loss, ”says Udo Reuss, tax expert at the Finanztip.de portal. Unlike profits from stock transactions, on which a flat tax of 25% is due, speculative profits with Bitcoin and Co. are charged with the personal tax rate - at least if the investor is the owner of the crypto currency. Reuss: "It doesn't matter whether investors make a profit by exchanging them for another currency such as the euro, by selling them on the stock exchange, or because they use it to pay for goods or services." If a private investor uses a cryptocurrency as a means of payment, this is considered a sale. The price of the goods or services purchased determines the value of the sale.
There is an allowance for profits from the sale of cryptocurrency. “If the plus from the business with the digital currency is less than 600 euros per year, the profit remains tax-free. If it is only one euro higher, the entire profit must be taxed, ”emphasizes Reuss. If in one year there is not only a profit from digital money, but also from a valuable antique, for example, the tax exemption of 600 euros applies to all so-called capital gains in total.
The purchase price is calculated by subtracting advertising costs such as trading fees from the selling price. What is left is profit or loss. "The latter may only be offset against profits from other speculative transactions in the same year," explains Reuss. Another restriction: losses can only be offset against profits from private capital gains. Reuss: "This cannot reduce your own wage tax."
In order to be able to show the tax office how sales profits or losses were incurred, investors must be able to document all purchases and sales in detail: "Every point in time and the respective price of each transaction must be documented," says Reuss. This can be a lot of work when a digital currency has been purchased in multiple installments. However, this bookkeeping is also the basis for correctly calculating the tax burden or tax relief in the event of losses. “Investors can use the first-in-first-out method, or Fifo for short,” says Reuss. It is assumed that investors will be the first to sell the digital coins bought first. “In the event of a win, the Fifo method is cheaper,” says the Finanztip expert. Alternative methods of determining profits are 'last-in-first-out', which works exactly the other way around, or an average assessment of profits within a year.
Anyone who produces a cryptocurrency using what is known as mining, “is basically commercially active from a tax point of view,” explains Reuss. In response to a parliamentary question, the federal government wrote: "If cryptocurrencies are acquired or produced in the context of commercial activity with the intention of making a profit, profits from the sale or exchange (...) must be recorded as part of the income from commercial operations. The costs for mining (...) are deductible as business expenses. "
There is only an exception in the case of small-scale mining. Income up to 256 euros can remain tax-free. “But that too is only an exemption limit. Just one euro more leads to full tax liability, ”warns Reuss. And then the tax authorities can demand business tax in addition to income tax.
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