Those who trade in cryptocurrencies must deal with the correct taxation of income. Basically, every trade is a tax-relevant event that must be reported to the tax office. Also, if a tax advisor is consulted, he needs support for the crypto tax return. A complete tax report of crypto transactions is inevitable here. Relief is promised by a crypto tax tool that accurately prepares crypto trades.
Overview and general information about crypto tax return
Trading cryptocurrencies such as Bitcoin, Etherum& Co. Is generally to be taken into account in the tax return. Tax authorities are interested in all trades, gains and losses from trading virtual currencies. According to the classification of BaFin (Federal Financial Supervisory Authority), cryptocurrencies are to be classified as crypto assets according to ยง 1 para. 11 sentence 1 no. 10 KWG (German Banking Act), which means that they are financial instruments. They are digital representations of values that are not issued or guaranteed by any public body or central bank. Therefore, they do not have the legal status of a currency or that of money. From the perspective of the tax office, cryptocurrencies are thus declared as private money.
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Trading with Bitcoin, Ethereum, Ripple or other virtual currencies is thus considered a private disposal transaction or a speculative transaction for tax purposes. Therefore, taxes may be due on gains (for example, from the sale). For the tax due date, the acquisition date of the respective cryptocurrency is important. Here are two cases to be distinguished for tax purposes, which relate to the holding period:
If it is a holding period of more than one year, the trade in cryptocurrencies is tax-free. So, if you had the cryptocurrency in your wallet for more than a year before selling it, you don’t have to pay taxes on possible capital gains. There is one important exception to note here: if interest was paid on the virtual currency held, then this interest is subject to the final withholding tax. Furthermore, in this case, the speculation period increases to ten years.
In the case of a holding period of less than one year, full taxation is due. So if you speculate only in the short term and hold units of a virtual currency only a few hours, days or weeks and make a capital gain, you are liable to tax. There is an exemption limit of 600 euros here. If the profit is below this exemption limit, it is tax-free. Do not confuse this exemption limit with the tax-free amount. As soon as the profit exceeds the exemption limit, it is fully taxable.
Losses can also be taken into account for tax purposes. In the event of a false speculation in trading cryptocurrencies, the losses can be offset against any profits from the previous year.
Cryptocurrencies and their indication in the tax return
The correct attachment for the declaration of profits from cryptocurrencies is the attachment SO in the tax return (other income). All profits must be entered there. Even those that are below the exemption limit of 600 euros. Even if the profit is tax-free, this tax exemption must first be determined by the tax office. Regardless of whether there are profits or losses, they must be entered in this attachment.
Advantages and benefits from crypto tax tools
Especially when trading cryptocurrencies, there is often a great deal of confusion due to the diversity of titles and platforms. Those who actively trade often have to deal with a large number of trades and associated profits or losses. The overview is difficult without support. Remedy crypto tax tools provide. These offer a professional overview as well as a summary of all trading activities as a tax report for cryptocurrencies. The creation is mostly intuitive and takes just a few clicks. First, all exchanges and transactions must be entered into the tax tool. The creation of the tax report is done automatically on this basis. For the tax office, such a clear presentation of the purchases and sales made is usually sufficient. With some crypto tax tools, the basic functionality is free, while only the final creation of the tax report incurs costs. But this can differ from one provider to another.
Especially functions such as import and export of different crypto wallets and exchanges are a significant contribution to saving time. The management of trades can thus be significantly simplified.
Tax report for crypto: selection criteria of crypto tax software
The basic mode of operation of crypto tax software is that of a kind of data aggregator. Existing data from different crypto exchanges, blockchains or wallets is collected, aggregated and a control report is created from it. The software compares the transactions from different currencies and exchanges and creates detailed profit and loss reports from them. These are compatible with the specifications and guidelines of the tax office.
When selecting the crypto tax tool, it is important to pay attention to what is important in each individual case. For some traders, a simple basic tool is sufficient if only a small number of trades are available. Others need a tool with unlimited number of trades or with extra comprehensive support.
Regardless of the type and scale of use, verification of legitimacy and credibility is essential. Since taxpayers are responsible for their own information to the tax office, due diligence is important when choosing a tax tool. To evaluate it, it is worth taking a look at the team behind the tax tool. People with experience in tax compliance or regulation should be available here. A team consisting only of technology experts may not have the required tax experience. Furthermore, it is worth taking a look at which industry and trade organizations the tax platform is affiliated with. Blog and website posts directly and currently related to crypto taxation can also provide an indication of experience in this area.
Another important selection criterion is interfaces and import options. Major interfaces for wallet and exchange data integration should be available. Among the most important are the import of CSV (Comma Separated Values) and API (Application Programming Interface). The most accurate way to import is through the API. Here, all that needs to be done is to copy the API key of the exchange or wallet and paste it into the crypto tracking software. Subsequently, an automatic import and reconciliation of transactions takes place. The more API integration options the crypto tax tool has, the easier it is to import different currencies.
Also to be considered in the selection process are price points. This refers not only to the absolute prices, but also to the price structure or tiering. Most crypto tools rely on pricing models or subscriptions based on aspects such as transaction count. Most providers offer free basic accounts for a small number of transactions. Users are promoted to the next higher price category when a certain number of transactions is exceeded. Basically, the cheapest offer is not necessarily the most advantageous one. It may be worth paying a premium for better interface integration or a higher level of credibility.
Crypto tax tools at a glance:
CoinTracking
CoinTracking is a company headquartered in Munich, Germany. It is one of the largest tracking tools for cryptocurrency trading. CoinTracking offers a very precise analysis of all trading activities on the crypto market. The strength is the high density of information that the tool summarizes. For beginners, this wealth of information can be overwhelming. The tool also offers a representation of its own crypto portfolio. CoinTracking offers numerous import options, both for API interfaces, directly via the blockchain or manually via a CSV file. It is currently possible to import transactions from more than 110 different exchanges or wallets. CoinTracking cooperates with professional tax offices. Furthermore, the company has almost ten years of experience. This makes it possible to create a plausible and correct tax report. CoinTracking supports 12 different tax methods (including First in first out (FIFO) or Last in first out (LIFO). The tool supports tax and capital gains reports for more than 100 different countries. An access for tax consultants completes the functionality of CoinTracking.
Accointing
Accointing is a Swiss company based in the city of Zug. Accointing also offers a crypto portfolio tracker and a corresponding tax tool. The company’s focus is on both portfolio management and tax report. Accointing also offers cooperation with tax offices. The Winheller law firm offers the company advice on tax issues. Accointing’s tax tool is a one-stop solution that supports tax reports for different countries (Germany, Austria, Switzerland, UK and USA). Many functions in Accointing can be used free of charge. Costs are only incurred when the crypto tax report is created. Strengths are also the easy entry into the use as well as the clear and appealing design of the tool, which makes it usable without special prior knowledge.