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HomeNews▷ Bitcoin, Ethereum & Co: cryptocurrency tax trap

▷ Bitcoin, Ethereum & Co: cryptocurrency tax trap

06.09.2021 – 12:25

United Wage Tax Aid eV – VLH

Bitcoin, Ethereum & amp;  Co: Cryptocurrency tax trap

Neustadt ad W. (ots)

Cryptocurrencies such as Bitcoin, Ether or Ripple have long been considered a niche phenomenon, but are now also of interest to private investors. But be careful: not only trading, but also exchanging or purchasing with cryptocurrency can be tax-relevant. The Lohnsteuerhilfeverein Vereinigte Lohnsteuerhilfe e. V. (VLH).

Classic forms of investment: the bank takes care of the final withholding tax

As a rule, private investors with stocks, fund units and other regulated investment products in their custody account hardly ever come into contact with the tax office: the banks may offset profits against losses and pay the withholding tax for them.

It is different with cryptocurrencies. The Federal Financial Supervisory Authority, or BaFin for short, has classified Bitcoins & Co. as units of account. Cryptocurrencies are therefore not legal tender, cash holdings in virtual currencies are therefore legally neither treated as (foreign) currencies nor as capital investments. But as so-called other economic goods. And that means: Profits and losses from cryptocurrencies can be relevant for the tax return.

Investment form cryptocurrency: private investors have to take care of themselves

For example, if you as a private investor sells Bitcoins at a profit within a year, you will achieve speculative profits that are subject to the regular income tax rate. For the tax office it makes no difference how this profit is generated. This means that anyone who trades in cryptocurrency, exchanges it for real currency or uses it to buy – which is already possible with some retailers – may have to declare their profits in their tax return.

The decisive factor for the question of whether and how much capital gains are taxed is the date on which the digital currency was purchased. There are two scenarios for this:

1. Holding period of more than one year: tax-free

For private investors who bought Bitcoin & Co. more than a year ago, things are simple: their capital gains remain tax-free. There is one restriction, however: If you earn interest with the crypto currency, not only is the withholding tax due for the interest, but the so-called speculation period also increases from one year to ten years.

By the way: The Federal Ministry of Finance has published a draft letter on the taxation of crypto currencies, which for the first time also comments on the taxation of income from Proof of Stake (PoS). Accordingly, a speculation period of ten years would apply to staking if the holding of cryptocurrencies leads to the allocation of further units. That means: According to the BMF, cryptocoins used for staking can only be sold tax-free ten years after purchase. Since the subject is quite complex and also controversial, the VLH recommends that you seek tax advice in this case.

2. Holding period of less than one year: taxable

Anyone who only holds the bitcoins for a few months and then sells or exchanges them for a profit must pay tax on the profit at the personal tax rate. However, there is an exemption limit that helps you save. Because private sales transactions remain tax-free up to an exemption limit of 600 euros per year. But be careful: the exemption limit should not be confused with the exemption. Anyone who is even one euro above the exemption limit has to pay tax on all of their capital gains.

By the way: The exemption limit applies to all private sales transactions within a year. That means: If a private investor has sold assets such as gold, jewelry or paintings within a year in addition to capital gains from Bitcoin trading, he must add up all the profits from a year. Private sales are only tax-free if his profit remains below 600 euros.

Determine profits using the Fifo method

The capital gain results from the difference between the sales price achieved and the purchase price of the cryptocurrency. The problem: Like stocks, cryptocurrencies are subject to price fluctuations. So the question is which order of purchases and sales must be followed. The answer: Basically, the Fifo method is used with Bitcoin & Co. Fifo stands for “First in, first out” and means that, for example, the bitcoins bought first are offset against the bitcoins sold first. The VLH therefore recommends precisely documenting all Bitcoin transactions that a private investor carries out. In this way, in case of doubt, he can provide the tax office with precise evidence.

Losses can be offset

As with stocks, losses from Bitcoin trading can also be offset: either with profits from the previous year or, thanks to losses carried forward, with future profits. However, losses from private sales transactions can only be offset against such profits – and not against profits from, for example, share transactions.

From a formal point of view, it works like this: On the first page of the tax return, a private investor with cryptocurrency losses must tick the item “Declaration for determining the remaining loss carryforward”. As a result, the tax office will separately determine for him in a “notification of the separate determination of the remaining loss carryforward” whether a loss carryforward is possible and how high it is. This loss assessment notice is issued separately for married couples, usually together with the tax assessment. The result: the tax office remembers the amount of the loss in the current year and deducts the loss from the income in the coming year. This will reduce the taxable income in the coming year.

VLH tip: Have profits and losses balanced

The subject of cryptocurrency and taxes is highly complex, especially for those with no tax experience. Therefore: Anyone who invests in cryptocurrency should have their broker or financial institution document and offset the profits and losses that have arisen within a year. With this evidence, private investors can state the relevant sums in their tax return or transfer the whole thing to a VLH advisor.

The VLH: largest wage tax aid association in Germany

The Lohnsteuerhilfeverein Vereinigte Lohnsteuerhilfe e. V. (VLH) is Germany’s largest wage tax aid association with more than a million members and around 3,000 advice centers nationwide. Founded in 1972, the VLH also provides most of the DIN 77700 certified consultants.

The VLH prepares the income tax return for its members, applies for allowances, determines and applies for grants and allowances, checks the tax assessment and a lot more within the scope of the legal advisory authority according to § 4 No. 11 StBerG.

Press contact:

Christina Georgiadis
United wage tax assistance e. V. (VLH)
Fritz-Voigt-Str. 13
67433 Neustadt ad Weinstrasse

Tel .: 06321 4901-0
Fax: 06321 4901-49


Original content from: Vereinigte Lohnsteuerhilfe eV – VLH, transmitted by news aktuell

Hasan Sheikh
Hasan, who loves technology and games, is studying Computer Engineering at Delhi JNU. He has been writing technology news since 2016.


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