Cryptocurrency Tax Trap: What Should Be Considered?

Cryptocurrency-Tax

Currently, many people are investing in cryptocurrencies and trying to increase and diversify their portfolios in this way. An investment in cryptos can be very worthwhile because many people have already made profits with Bitcoin, Ethereum & Co, and the crypto market also promises exciting options for many investors in the future.

One of the most well-known examples of cryptocurrencies and significant gains is Bitcoin rushing from record high to record high, delighting investors. No matter how money is made with the cryptos – whether in a casino or with classic trading – one question occupies everyone: How do you tax the profits?

The fact is: The cryptocurrencies are not yet recognized as currency by the tax office, but the profit from cryptos must also be taxed. Below we take a look at what exactly is behind it.

When Do Taxes Have To Be Paid On Cryptocurrencies?

Cryptocurrencies are subject to taxes if specific criteria are met. This is because the popular cryptos are not considered valid currencies by the tax office but as so-called units of account.

For tax purposes, profits from cryptocurrencies are treated as so-called private sales transactions, roughly comparable to profits from the sale of art, houses and apartments as well as rarities or antiques. Furthermore, the profits made by trading cryptos only have to be taxed if the purchased cryptos are bought and sold within the same year, and a profit is then made.

In addition to this condition, the total profit made from the sale of cryptos must exceed the limit of 600 euros. They only have to pay taxes on their investments in cryptos if these two conditions, or one of them, are met. On the other hand, the upper limit is 200 euros higher for transactions with shares, which is interesting for those who already have shares and pay taxes on them.

It is essential to note that the mentioned limit of 600 euros does not only affect transactions with the cryptos but all profits that came about from the so-called private sales transactions. So you must ensure that you add up all the profits from this category and not look at the cryptos individually.

At this point, there is a small tax trap because many investors do not know that they have to add up all transactions of this type. So if you sell a painting plus cryptos, you must add the profits from those two sales together and then tax the amount if it is over the cap.

Who Does Not Have To Pay Taxes On Cryptocurrencies?

Cryptocurrency owners sometimes have the option of not paying taxes. This is the case, and if you buy crypto and keep it in your portfolio for more than a calendar year, you can sell it at any price and for any profit and then not have to pay any taxes on it.

This means those who wait a little longer than a year will not have to pay taxes, even on the most significant wins. This is an excellent way to avoid involving the Treasury in dealings with popular cryptos. There is one exception, however, because if you own bitcoins, for example, and then exchange them for another currency, such as Ethereum, within the first year, you will have to pay tax.

This is because swapping to another cryptocurrency is considered a sale, so you should wait a year before swapping your cryptos to another currency. The use of cryptos within the first year also means that you have to pay taxes on the coins. In general, it is therefore advisable to always wait a year after buying cryptos and only then use the cryptos to exchange and sell them.

Also Read: How Long Would It Take For One Computer To Mine A Bitcoin?

Does The Tax Office Have Access To My Crypto Wallet?

Currently, there is no unified regulation for regulating and verifying the accounts of crypto owners, but this could change in the future as several countries are currently planning such a law. That is why the tax office can currently only access the cryptos of German citizens with incredible difficulty. 

This is because many platforms where cryptos can be traded are not registered in Germany and are located in other countries, and the tax office cannot access them. Another issue on the tax side is the anonymity of crypto owners. 

Therefore, a new law is to oblige the operators of the platforms to no longer only collect the users’ data anonymously but with their name and nationality so that the entire market can be better regulated and monitored. 

Where Do The Cryptos Go In The Tax Return?

If you own cryptos and have to pay tax on them because you sold them within the first year and have made a higher profit than the stated maximum amount, then you must state this in the tax return.

This is possible with the average tax return and the extended filing for other income. These profits are made more expensive with the cryptos with the usual tax portion, as you pay it on your income.

In the case of the tax return, the pure profit with the cryptos is usually sufficient for the tax office, but later, you may have to submit further documents. It is therefore advisable to document the individual sales and purchases well and cleanly so that you have them immediately available when you need them.

Ideally, wait for a little over a year after purchasing your cryptos before selling or making purchases with them. This way, you save annoying tax returns, and you don’t have to worry about giving part of the profit back to the tax office. After this period, you can keep winnings without problems and, above all, without tax. Because in general, it is also highly recommended to keep the cryptos as a long-term investment and not to get rid of them immediately with the next big hype.

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