Bitcoin tax return: This is how investors can claim a cryptocurrency for tax purposes

 Cryptocurrencies are treated in the same way as other currencies for tax purposes. Investors, therefore, have to pay taxes on profits with EOS, NEO, Ripple, and Bitcoin. You can find out how to claim a cryptocurrency for tax purposes and what you need to look out for in a Bitcoin tax return here

BITCOIN TAX RETURN - DOES IT EXIST?

Cryptocurrencies have been classified as a “unit of account” by the Federal Financial Supervisory Authority (BaFin). The result: Bitcoin, Ripple, NEO, EOS & Co. are subject to the exact tax requirements as other currencies. And what's more: The virtual currencies, which have already made one or the other investor a millionaire, are classified as private money. As a result, taxes are levied on Bitcoin in some cases.

The tax authorities see cyber money in the hands of consumers as private economic goods and evaluate trading in Bitcoin, Ethereum, Ripple, EOS & Co. as private sales transactions that fall under the Income Tax Act (EStG).

There is, of course, no bitcoin tax or even a bitcoin tax return, but many netizens and crypto investors search Google for precisely that. For simplicity, we will therefore speak of "bitcoin tax return" in this guide when it comes to claiming a cryptocurrency for tax purposes in a tax return.

HOLDING PERIOD OF CRYPTOS CRUCIAL

The decisive factor in determining whether taxes are due on a cryptocurrency or not is the time of purchase and sale, i.e., ultimately, the holding period. Crypto investors who have had Bitcoin, Ethereum, and Co. in their wallet for more than a year can sit back and relax because: In this case, no Bitcoin tax has to be paid due to the minimum holding period of 12 months.

The situation is different if interest has been generated with the cryptocurrency business. Then the withholding tax is due. This is the case, for example, when you “lend” bitcoins or other cryptos to other merchants in the form of peer-to-peer lending or through exchanges. The so-called speculation period, i.e., the minimum holding period, is extended to ten years.

SHORT HOLDING PERIOD: BITCOIN TAX IS DUE

If you own Bitcoins or other cryptocurrencies, you may pay taxes. This is the case if, as a crypto investor, you fall short of the one-year holding period and exchange the digital coins for other currencies or sell them at a profit.

Your tax rate then also applies to Bitcoin, NEO & Co. To calculate this, multiply the income tax paid by a hundred and divide this by your taxable income - more information on this is available from the income tax assistance association.

FIFO METHOD: CALCULATE CAPITAL GAIN

The Treasury classifies trading in online currencies as private sales transactions. This capital gain is calculated from the difference between the purchase and sale price of Bitcoin, EOS & Co. It makes sense to use the so-called "FIFO" method for the capital gain on cryptocurrencies.

FIFO stands for "First in, first out" and means that the digital coin bought first is offset against the cash sold first. Due to the high volatility of cryptocurrencies, the actual capital gain can be calculated particularly precisely.

CALCULATE CAPITAL GAIN WITH "FIFO"

On September 1, 2017, you bought four bitcoins for 8,000 euros. Four weeks later, on October 1, 2018, you purchased four bitcoins again. This time the digital coins cost 10,000 euros. Then, on December 1, 2017, you sold seven bitcoins for 25,000 euros, resulting in the following calculation:

Capital gain - an example

 

• Selling price per bitcoin 25,000 euros : 7 = 3,571 euros

• Sale price first batch 4 x 3,571 euros = 14,284 euros

• Purchase price of four bitcoins (first batch) 8,000 euros

• Win first sale 6,284 euros

• Sale price second batch 3 x 3,571 euros = 10,713 euros

• Purchase price of four bitcoins (second batch) 10,000 euros

• Win second sale 713 euros

• overall profit 6,284 euros + 713 euros = 6,997 euros

METHOD FOR PROFIT CALCULATION FREELY SELECTABLE

Incidentally, there is no specific procedure for calculating your capital gain. The choice is yours; FIFO is just one option. You can also choose the "last in, first out" option or use "weighted averages" to determine the profit that you have to pay tax on. Gains generated from online currencies are taxed according to the individual income tax rate plus solidarity surcharge and church tax.

If you frequently buy and sell Bitcoin, EOS, NEO, Ripple, and other digital currencies, you may be at risk of the agency classifying your crypto trading as a business. In this case, the cryptocurrency would be counted as a business asset and taxed accordingly.

PROCUREMENT IMPORTANT FOR POSSIBLE BITCOIN TAX

The question of procurement must also be clarified to decide whether a tax is due within the meaning of the Income Tax Act (EStG). Not all cryptos that are sold were previously purchased within the meaning of the law. The seller may also have received the cryptocurrency through mining. Depending on the individual case, it must be checked whether the Income Tax Act applies.

BITCOIN TAX RETURN: YOU CAN DEDUCT THAT

As you can read in our crypto dictionary, a wallet is indispensable for crypto buyers. Buyers of digital currencies usually cannot avoid opening an account with a crypto exchange or a CFD broker, at least for a short time. This can be important in the tax return, because: You can deduct all the fees incurred from your taxes.

You can also offset any losses from Bitcoin, Ethereum, or Ripple trading. This is possible either with profits from the previous year - or with future profits, the so-called loss carryforward. Here you can offset the sum of losses against later profits.

Incidentally, the electricity costs incurred for mining can also be claimed for tax purposes. They will be offset against the profit.

CRYPTO MINING AND TAXES

According to the law, anyone who obtains their digital coins through so-called mining or even makes a profit by digging for crypto coins has earned income from a commercial enterprise - and these profits must be taxed accordingly.

Taxes are also usually incurred for cloud mining, i.e. renting computing capacity and mining cryptos remotely. That depends on the contract and provider.