Profits from Bitcoin and Co can quickly become a tax trap. The futurezone explains what to watch out for.
The crypto market is booming. But while Bitcoin and other crypto assets climb from one record to the next, you run the risk of falling into the tax trap. Because every transaction with crypto assets is taxable if the acquisition was less than a year ago and a profit was made. It does not matter whether you get euros for the cryptos sold, exchange them for other crypto currencies or buy a product or service with it.
The euro value of purchases and sales must therefore be precisely recorded together with the date of the respective transaction. If you make more than 440 euros profit in a calendar year (Germany: 600 euros), the amount must be stated in the tax return as other income under the item “Income from speculative transactions”. Anyone who has previously only submitted an employee tax assessment must change the declaration in FinanzOnline and submit an income tax declaration.
How does theory work in practice?
What sounds plausible in theory, however, quickly turns into a nightmare in practice. Even if you only trade a few cryptocurrencies on a few exchanges and transfer them to secure hardware wallets for safekeeping, the documentation effort can quickly increase. In addition, there are some areas that are barely or unclearly regulated by law.
“Since the requirements of the Ministry of Finance are largely missing, the tax offices judge inconsistently”
This includes the lending of crypto assets (“lending”), for which you get additional coins as “interest”, but also the so-called “staking”. You are rewarded for temporarily making a certain crypto currency available, for example to keep the network stable. Another special case arises with the “airdrop”, where you are rewarded for simply holding a crypto currency with other crypto coins.
“Unfortunately, there is still considerable legal uncertainty about the correct taxation of crypto assets. Since the binding requirements of the Austrian Ministry of Finance are largely missing, the respective tax offices unfortunately judge inconsistently ”, criticized Natalie Enzinger, a tax advisor who specializes in crypto issues, in an interview with futurezone.
What is the best way to document transactions?
If you have to enter all transactions manually in an Excel file, you quickly lose track of things. In addition, the euro value must be recorded when buying and selling. Many exchanges also offer their transaction history as a CSV file for export. However, it must be checked whether the interface spits out all data correctly.
It is easier to use control software, which can also be fed via CSV file or API from most exchanges and then allow the calculation of all transactions. In addition to the Austrian software Blockpit, other platforms such as co-tracking and accointing also offer the possibility of creating tax reports. Koinly also has good user reviews. In addition, screenshots of transactions are recommended for documentation purposes.
“The programs do a lot of work, but they're not perfect. In view of the unclear and sometimes different legal situation in different countries, that is not surprising, ”says Enzinger. “The data, but also the calculation, have to be checked before submitting them to the tax office, which is why many people end up calling in tax advice.”
Which calculation method: FIFO or LIFO?
The devil of calculating profits lies in the detail. If crypto assets are acquired at different times, the decisive factor in the event of a sale or exchange is which of these “tranches” is sold or exchanged.
If the sold crypto assets cannot be assigned, the so-called FIFO method (first-in-first-out) is used in Austria. The oldest crypto assets are considered to be sold first. If you bought 0.3 Bitcoin in January and another 0.2 Bitcoin in February and then sells part of it again in April (e.g. 0.15 Bitcoin), the sales proceeds are reduced by the proportionate acquisition costs of the January tranche .
Natalie Enzinger, tax advisor
The LIFO method (last-in-first-out) still offered by some tax software, however, suggests that the coins bought last will be the first to be sold again, which can also be useful depending on the market cycle. According to Enzinger, however, this method is not considered permissible by Austrian tax authorities.
How are crypto assets given away for taxation?
If crypto assets are given away, according to Enzinger, the decisive factor is not the value when the gift is handed over, but at the time of purchase. The date on which the cryptocurrency was originally purchased also determines whether any increase in value must be taxed by the recipient. If the crypto gift is sold before the 1-year period after the original purchase has expired, tax must be paid on the increase in value. If you sell after this year, the profit is tax-free.
It should also be taken into account that there is an obligation to report gifts in the tax return if a certain amount is exceeded. Between relatives this amounts to over 50,000 within one year, between other persons to over 15,000 within 5 years. In this calculation, however, the value at the time of gift delivery must be taken into account.
How about staking and lending?
Those who make their coins available to the network or a validator (staking) receive reward coins for this time. “Each staking activity has to be assessed individually, as different income levels can be available depending on the structure. In most cases, staking is taxable as part of other income. When the coins are received, they must be converted into euros, ”says Enzinger.
The whole thing is not legally clarified, as is the relatively new DeFi area (decentralized finance), where coins are lent against interest in the same crypto currency (lending). Airdrops that you get without any personal contribution should, however, be tax-free.
Argue conclusively
“In truth, you have to look at every source of income in the crypto space in detail. This is extremely time-consuming and requires specific expert know-how, ”explains Enzinger. It is therefore advisable to consult tax advisors who specialize in the taxation of crypto assets. If you can argue conclusively with professional help at the tax office how you have calculated your income in the portfolio, that is definitely an advantage. Unpleasant surprises could be avoided.
