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Bitcoin: Profits are tax-free after a one-year holding period - but this does not apply to crypto ETFs and other derivatives
Photo: Jens Kalaene / dpa
Those who were not deterred by the stock market panic in March 2020 were richly rewarded in retrospect.
At that time , a
Bitcoin
was temporarily available
for around 5,000 US dollars , but the cryptocurrency is now scratching back to the
60,000 US dollar mark
.
The value of digital money has increased more than tenfold within a year.
Some investors should now
sit on high profits,
but they have to tax them correctly.
The crypto market is not easy terrain for investors and tax lawyers alike. Often a tax liability arises not only when the digital money is exchanged for euros or dollars. New developments in the crypto scene also raise questions about tax law. Because cryptocurrencies can no longer only be traded, but also lent against interest. In an interview, crypto expert Florian Wimmer explains how you can legally tax profits from crypto currency transactions - and save a lot of money in the process.
manager magazin:
Mr. Wimmer, your software should protect crypto investors from problems with the tax office.
Have you ever clashed with the tax authorities yourself?
Florian Wimmer
: I wouldn't go that far.
However, I have already proactively arranged a disclosure with my tax advisor.
In Austria, the Federal Ministry of Finance did not provide the first clarification on the subject of cryptocurrencies until 2017.
At that time I had already been active in this area for two years and had to declare taxes afterwards.
Even today, many crypto investors are likely to be unsure how to correctly tax their assets. What should you watch out for if you want to realize price gains with Bitcoin and Co?
In Germany and Austria, there is a speculation period of one year for crypto currencies.
So if you have kept your coins for a year and a day, you can take all profits with you tax-free.
This means that crypto investors are taxed more favorably than stock investors, because 25 percent capital gains tax is due on stock gains regardless of the holding period.
That is correct.
But even a crypto investor has to consider a few things if he wants to use the tax exemption after a year of holding.
What many do not know: If I change my bitcoins into another crypto currency such as Ethereum or pay for goods with it within a year, I trigger a tax event.
In addition, after a one-year holding period, the tax exemption does not apply to cryptocurrency ETFs or derivatives that only show the performance of cryptocurrencies such as Bitcoin or Ether.
As with stocks, you have to pay taxes on price gains on these assets, regardless of the holding period.
But tax liability only arises for the crypto currencies if the profits are above the annual exemption of 600 euros in Germany and 440 euros in Austria?
I agree.
This exemption limit applies to all private sales transactions, which include trading in gold and antiques in addition to crypto currencies.
If the investor has bought these at several points in time, the respective asset acquired first is also sold again first.
According to which tax rate is the tax liability calculated if the tax exemption is exceeded?
In such a case, I pay my personal income tax rate, which is between 14 and 45 percent plus solos and, if applicable, church tax.
We are fast with high percentages.
It is therefore always worth paying attention to the holding period.
Anyone who exceeds the exemption limit with their speculative profits should state this in the corresponding line for private sales transactions in the income tax return.
As an investor, it is important to document the times of purchase and sale as well as the respective prices.
If you have perhaps even received coins as a gift, you should ask the previous owner for the respective acquisition dates.
Whats the best way to do this; Is an Excel list enough?
No, the tax office generally does not accept such Excel lists - they are too easy to manipulate.
Theoretically, all of this data can be traced via the blockchain when I am traveling with my own wallet or can be accessed via the trading platforms used.
Programs can also help to keep a holistic overview.
The data of the respective exchange or blockchain is read out directly via programming interfaces, so users can get their own personal tax report on a daily basis.
The EU Commission has also announced for this year that it will extend the so-called DAC8 directive on the automatic exchange of information to crypto values.
This means that the exchanges within the EU would have to determine the entire transaction data of the users annually and forward it to the authorities.
The tax office can then directly access all transaction data.
It will therefore be noticeable in the future if the information in the tax return differs from that on the stock exchange.
It is therefore advisable to create your own complete transaction history with the data from the exchange right from the start.
Even if I only realize profits after a year.
Why is it necessary?
The bank can also request proof of origin if my account suddenly receives large sums of money.
In retrospect, it can be difficult or even impossible to access the data again.
After all, there have already been a few exchanges or crypto trading venues that suddenly went bankrupt or offline - then investors have a problem with proof.
How should investors proceed if, in such a case, they can no longer prove the time of purchase and the purchase price?
Then the purchase price and the one-year period are set to zero in case of doubt.
If the investor sells within the one-year period, the selling price is equal to the profit.
So you are on the safe side.
However, from a tax point of view, this is anything but optimal.
In the case of cryptocurrencies, there is tax exemption after a holding period of at least one year, in the case of crypto ETFs and stocks not. Is this different taxation an advantage or a disadvantage from an investor's point of view?
That depends on your own investment strategy.
Those who want to hold the respective cryptocurrency for the long term benefit from the speculation period.
It should therefore be more attractive in the future to invest in the cryptocurrency directly and not in a crypto ETF for retirement provision.
But if I prefer to trade actively and frequently with the assets or even do day trading, I should rather rely on securities that reflect the price of Bitcoin and Co.
When can the tax liability on Bitcoin ETFs be an advantage for the investor?
If, as a private investor, I am active in both the stock market and the crypto market, I can offset profits from crypto derivatives such as a Bitcoin ETF with losses on the stock market.
But that doesn't work if I hold real coins and tokens.
Loss compensation is only possible within one tax category.
Does that apply equally to the more than 6,500 cryptocurrencies on the market?
No, a tax trap lurks here too.
A basic distinction is made between three types of cryptocurrencies: the payment utility and security tokens.
Security tokens are issued by companies like a bond or share and are treated like a traditional security by regulators.
There is no speculation period with security tokens, capital gains taxes are due.
It gets even more complicated in the area of
decentralized finance
.
For example, investors can lend their assets decentrally via protocols in order to receive interest.
There is still a lot of uncertainty in the DeFi area, and not every case has been finally clarified.
In the specific example of interest-bearing lending, the question arises whether the speculation period increases from one to ten years.
Since I, as a user, only interact with programs and not a "real" counterparty, the literature is currently relatively unanimous: Income from such transactions is taxable when it is received and must be declared as income from other services.
This would not have any effect on the underlying asset and its holding period.
At Blockpit, you recently used your user data in cooperation with the Frankfurt School Blockchain Center and the law firm Dr. Andres estimated a potential tax amount of 1.28 billion euros for 2020. How much of that is likely to actually go to the Treasury?
Probably just a small, single-digit portion of that amount.
However, I am convinced that the potential and actual tax revenue in the field of crypto assets will increase.
We have a limitation period of seven years for tax evasion offenses.
Who knows how the tax office will be set up in a few years.
It is not a good idea to withhold speculative profits, especially if the investor can be shown to have acted willfully.
Then there is even a threat of imprisonment.
The Blockpit business model is based on the fact that the current regulations are complex. Would your business do itself if there was more clarity?
Of course, the more complex the current situation, the more attractive we are to our customers.
But I don't think our business model would work out.
For our support, more clarity would even be good because we would then be able to react faster.
Automated solutions are popular and relieve people of work.
Have you already completed your tax return for 2020?
No, I actually don't even have that for 2019 so far. I now have four weeks for my tax return with an advisor in Austria.
I fear, however, that in 2019 there were mainly losses.