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Taxes

Taxes - is Bitcoin a means of payment?

The question of whether Bitcoin & Co. is a real means of payment has a direct impact on key tax issues.

Fans of cryptocurrencies will argue that the naming suggests that it is real money. However, the case law in most countries sees it completely differently, also with regard to Taxes. So are Bitcoin & Co. no legal tender. This means that sellers are not legally obliged to accept them as payment for goods or services.

What are cryptocurrencies actually?

In our comprehensive article on cryptocurrencies, you can find out what cryptocurrencies are and what different types there are.

Of course, every business person and every private person can decide for themselves whether he or she wants to recognize crypto currencies to pay for services provided or not. But in any case this is an agreement under private law without a legal basis.

Even with the so-called "mining" of Bitcoin and other cryptocurrencies, the starting point is fundamentally different from the issue of legal tender. In contrast to that, Bitcoin & Co. no issuer - Usually the central bank of a country, which is responsible for issuing the local currency. And this is how the law wants it: no issuer - no legal tender.

This is exactly where it starts to get confusing. There is, for example, a ruling by the European Court of Justice (ECJ) from 2015. The court ruled that sales in Bitcoin are subject to the tax exemption for foreign exchange, in accordance with applicable EU law. Anyone who now assumes that this would be the proof that crypto currencies are legal tender and should be treated like all other fiat currencies (dollars, euros, etc.) is wrong, however. Bitcoin and other cryptocurrencies are - despite the judgment of the ECJ - neither one nor the other.

The legal situation regarding the taxation of cryptocurrencies

The current legal situation in most countries states: From the point of view of income tax law, cryptocurrencies are considered to be intangible assets to treat. In other words: income that comes from Selling cryptocurrencies must originate under certain conditions taxed become. We will come to these conditions later.

Cryptocurrencies are exempt from sales tax

At least one tax aspect has now been finally clarified - at least in Germany: The treatment of crypto currencies in connection with the value added tax. On February 27, 2018 the Federal Ministry of Finance A word of power was spoken on this, referring to the judgment of the ECJ already mentioned. Accordingly, the tax offices are instructed Transactions with Bitcoin & Co. basically as VAT exempt to treat.

Taxes on sales and cryptocurrencies

Income taxes accrue when income can be achieved, so looking at the tax situation depends on what happens when you Selling cryptocurrencies. It doesn't matter whether the coins come from previous purchases or whether you mined them. The only important question for the tax assessment is when they came into your possession, but more about that later.

If you sell cryptocurrencies from your property, there is a sale. However, there is also another form of sale, namely when the coins are used to pay for goods or services.

If one of these cases occurs, you have one private sale business made in accordance with Section 23 Paragraph 1 Number 2 of the Income Tax Act. There is also another name for this:Speculative business. The question of whether this sales transaction is taxable or not depends on the Time of purchase from.

For private individuals there is the term of in this context Holding ridge. It describes the point in time between the acquisition or the hand-made generation of the cryptocurrency and its sale. In the case of sales transactions in the private sphere, the deadline is a year.

Sales within the holding ridge are taxable, Sales after a year are for private individuals tax free.

Acquisition dates for cryptocurrencies are relevant for taxes

Admittedly, it's not that simple after all. As a rule, your own stock of cryptocurrencies comes from different purchases at different times and at different rates. This makes calculating the taxable capital gain a tricky business. Here is a simple example with theoretical values:

January 12th: Buy 1 Bitcoin for 8,200 euros
October 28: Sale of 1 Bitcoin for 9,000 euros
Capital gain: 800 euros

Since the Sale within the holding ridge takes place, is the capital gain taxable. The sale would be tax-free from January 12 of the following year.

However, if this example is the only sale in the current tax year, then only 200 euros taxed become. For private sales namely one Exemption limit of 600 euros in the year. But be careful: This applies to all sales transactions together, not just cryptocurrencies, but everything else as well.

Result from the transactions with cryptocurrencies loss, it can also be asserted. Not only is there no tax, but the loss can too offset against profits from other years become. Offsetting against previous years is called loss carryforward, with subsequent years loss carryforward.

It can get really complicated when it comes to sales multiple purchases at different times must be brought into relationship in order to determine the capital gain. The problem with this is that every Bitcoin looks like the other. Which coin did you use to sell: the one you bought last month or one you bought two years ago?

If you think that it doesn't really matter, you've forgotten the holding period. If the coin comes from last month's sale, the capital gain is taxable. If it comes from the sale two years ago, the sale is tax-free.

The FIFO principle

As a rule, the Regulation for foreign currency transactions apply, called FIFO. This is not a dog name, but stands for "First In - First Out". In other words, you use the for the upcoming sale oldest coins from your inventory. Here is also a theoretical example:

March 14, 2019: Buy 2 Bitcoin for 6,400 euros each
July 23, 2019: Buy 3 Bitcoin at € 7,600 each
October 2, 2019: Sale of 1 Bitcoin for 9,200 euros

To calculate the capital gain, it would be more beneficial for you to use the Bitcoin from the July 23 sale, so that the profit and tax burden are lower. However, this is usually not permitted. According to the FIFO rule, the Bitcoin from the purchase on March 14th must be offset, which results in a capital gain of 2,800 euros.

For a sale of 2.5 Bitcoin, you would have to use 2 BTC from the March 14th purchase and 0.5 BTC from the July 23rd purchase. The capital gain would then be calculated as follows:

Sales revenue: 9,200 x 2.5 = 23,000 euros
Buy 2 euros at 6,400 each = -12,800 euros
Buy 0.5 euros at 7,600 = -3,800 euros
Capital gain: 6,400 euros

It gets really complicated with the tax assessment of the purchase price Mining of cryptocurrencies. One thought would be to start the course from the moment it emerges. However, since this amount did not have to be raised for the purchase of the coin, the tax office could reject this view. On the other hand, the prospecting process took time and generated energy costs, not to mention the purchase of the hardware required to do the mining. In this special case the tax advisor can best help.

This is the premier class when calculating capital gains with cryptocurrencies: the combination of taxable and tax-free profits. Just look at this example:

May 3, 2018: Buy 1 Bitcoin for 6,300 euros
February 18, 2019: Buy 2 Bitcoin at 8,300 euros each
September 21, 2019: Sale of 2 Bitcoin for 8,900 euros

As you can see, the purchase on May 3, 2018 is outside the holding period, the purchase on February 18 is still within. According to the FIFO rule, the capital gain is calculated as follows:

Sales revenue 1:
8,900 - 6,300 = 2,500 euros tax-free (outside the holding period)

Sales revenue 2:
8,900 - 8,300 = 600 euros taxable (within the holding period)

Calculating the taxable capital gain can become a demanding task. Therefore you should always make sure Carefully document all purchases and salesso that you have reliable evidence ready for the tax office.

Which tax applies?

Capital gains from transactions with cryptocurrencies like normal income treated. Reduced tax rates and automatic deduction as with the final withholding tax do not apply here. So you are obliged to transfer surpluses from transactions with Bitcoin & Co. to your tax declaration to record.

Avoid taxes on crypto currencies and keep them from the tax office?

Especially as a private person, the temptation to conceal business with crypto currencies from the tax office can be great. The decentralized and partly anonymous architecture of these currencies makes one or the other think: "How is the tax office supposed to find out?".

In most cases, however, this is a fallacy. One of the most valued properties of the Bitcoin blockchain is complete transparency the previous transaction history. The anonymity is only guaranteed until you contact a Interface for buying and selling the coins. Here your name, address, etc. could easily be linked to your Bitcoin address.

Everything you need to know about Bitcoin

In our comprehensive article about Bitcoin you will find out in a simple and understandable way how Bitcoin works and what advantages it has.

This means that the tax office could theoretically if necessary (and the necessary access) your complete in one go View complete transaction history. Even if tax offices are probably not up to date with the latest technology, it is only a matter of time before Tools for analyzing blockchain transactions also arrive here.

How you deal with the tax is entirely up to you. However, you should consider: Taxes paid also benefit you, because they create the infrastructure that you use on a daily basis. But even if you ignore ethical and moral considerations, illicit business can always be discovered, even among private individuals. Even with the greatest caution, you can get into the field of vision of tax investigators - for example, when cross-checking other tax returns.

And finally: no other form of income offers such a simple and absolutely legal means of income Tax to zero as is possible with capital gains. All you need is something Patience until the ridge crossed is. Stress with the tax office is really not necessary.

Tax tools for cryptocurrencies

The subject of taxes with Bitcoin and other cryptocurrencies seems very complicated at first. To keep track of things, the most important thing is one accurate record of all transactions and crypto holdings. Fortunately, there are a few here Tax tools specially for Cryptocurrencies.

CoinTracking

With the market leader among tax tools, you have an optimal overview of your portfolio and your transactions. Transactions do not have to be recorded manually thanks to interfaces to stock exchanges.

To the CoinTracking website

Koinly

The English-language tool Koinly offers a service similar to CoinTracking. The startup attaches great importance to an appealing and easy use. Koinly can currently be used in over 20 countries.

Go to Koinly's website

Tax advisor on the subject of cryptocurrencies

The following selected tax consultants will be happy to help you on the subject of cryptocurrencies:

Freber & Partner tax advisor

In addition to traditional tax advice, Freber & Partner has built up expertise in the taxation of crypto currencies. Flexible and fast order processing in urgent cases including completely digital data exchange via the free cloud and meetings via video calls are part of the current way of working.

To the website

Haberbosch & Straub Attorneys at Law

Lawyer Haberbosch has specialized in the taxation of crypto transactions and offers services related to taxation. These can be booked online and even paid for with cryptocurrencies.

To the website

Legal and tax advice Schmidt

In addition to classic tax advice, advice on the taxation of crypto currencies is also one of our specialties. Here we draw on many years of experience and numerous clients we have looked after.

To the website

Note: The information only relates to the tax situation in Germany. This article was not written by a tax advisor and is not intended to provide legal or tax advice. If in doubt, please always consult a tax expert. Release date: 12/13/2019