Cryptocurrencies: How private investors taxes profits correctly in Germany
- Von Welt der Wunder
More and more people invest in Initial Coin Offerings (ICOs) by buying cryptocurrencies. While gains on stocks and securities are subject to capital gains tax, other regulations apply in the digital world. With these advices the tax declaration succeeds.
The height flight of well-known cryptocurrencies such as Bitcoin, Ether or Litecoin brought in a short time profits in millions for private investors. But: If you make profits, you have to pay tax on them – whether they are fluttering in on paper form or lying on a digital wallet.
How do retail investors tax digital profits?
There are two scenarios for the income tax treatment of cryptocurrencies in private wealth:
- The interest-bearing investment: This case occurs when, for example, someone lends his coins to another person and receives interest (e.g. in form of coins). In that case, digital money is a commodity and considered as a capital asset. Capital gains and changes in value are subject in this case to special tax rate of 27.5 percent.
- If there is no interest-bearing investment, cryptocurrencies are regarded as speculative objects: here a tax liability exists only if the period between purchase and sale is less than one year. Profits from the sale of digital private wealth are therefore tax-free if more than one year has passed since the acquisition.
Trading and selling of digital money
- Point of time: When did I buy the currency?
- Quantity: How many tokens?
- Daily rate: At what price?
- Place: On which stock exchange?
Which tax do I use?
By the way, the expenses incurred (e.g. cost of a wallet) can be deducted from the tax – as well as losses from crypto transactions. This means that the losses can be offset against profits from other private sales transactions (not just crypto gains) in the same year, in the previous year (loss return) or in following years (loss carryforward). In addition, all sales transactions are exempted by 600 euros. Note: If the profit is 601 euros, the entire profit must be taxed; at 600.99 euros, the taxpayer may round off and doesn’t need to pay tax to the tax office. If you make your own tax return, select SO (for other income) to include cryptocurrency, and at best fill it out even if there is tax exemption to ensure complete transparency for the tax office.