Taxes on cryptocurrency – what you should to know
Are cryptocurrencies taxed like stocks? From the type of tax to your tax-free allowance, this guide tells you everything you need to know about taxes and cryptocurrencies.
6 min read
The following statements do not constitute investment advice or any other advice on financial services, financial instruments or financial products. They are intended to provide general information. The following statements do not constitute an offer to conclude a contract for the purchase or sale of financial instruments and financial products or an invitation to submit such an offer. Cryptocurrencies are subject to high fluctuations in value. A decline in value or a complete loss are possible at any time. The loss of access to data and passwords can also lead to a complete loss.
Traditional investments are taxable in Germany, but what about cryptocurrency? Well, you’ve come to the right place. We’ve put together your guide to taxes on cryptocurrency in Germany: if and when cryptocurrencies are taxed, how the taxes are calculated, and how you report the whole thing in your tax return. Let’s dive in!
How are cryptocurrencies taxed?
Cryptocurrencies are a hot topic. Even though the market is highly volatile, more people are investing in crypto every day—or at least considering it. Why? Because if you’re lucky, you can generate solid returns. But heads up: just like stocks, exchange-traded funds (ETFs), and government bonds, you need to pay tax on any returns you generate with cryptocurrency.
Most traditional investments are subject to “withholding tax” (Abgeltungsteuer). However, cryptocurrencies aren’t considered foreign currency or capital investments in Germany, at least as far as taxes are concerned. Instead, they’re classed as “other personal economic assets,” like jewelry, paintings, or gold. If you sell your personal holdings, you’ll need to pay tax on the profits under Section 22 (2) of the German Income Tax Act. And as a result, cryptocurrencies are taxable in some situations.
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When do I need to start paying tax on my cryptocurrencies?
Cryptocurrencies are subject to a tax-free allowance of €600 and a speculative period of one year. These two factors determine whether your returns from cryptocurrencies are tax-free. If you sell your cryptocurrency for less than €600 within 12 months of purchasing it, your “speculative profits” will be tax-free.
And if you wait a year between purchasing and selling your cryptocurrencies, the speculative period will be done and you won’t need to pay tax on any profits (or losses!). The same applies if you only sell some of your crypto coins. For example, if you sell half of your cryptocurrency and then sell the other half a year later, you’ll only pay tax on the first half that you sold during the speculative period (assuming it’s more than the €600 tax-free allowance).
If you generate more than €600 in profits in one year, this amount counts towards your annual income. Depending on your tax bracket and your total income from all sources, you might need to pay income tax. However, you won’t necessarily have to pay withholding tax.
One more thing to watch out for: the €600 tax-exempt allowance applies to the total profits you make from all sales in the “personal economic assets” category, not just cryptocurrency sales.
Cryptocurrency tax calculation example
Let’s say you traded Solana in 2021 and generated a total of €1,000 in profit. This puts you above the tax-free allowance of €600, meaning that you need to pay tax on the whole amount. It is added to your gross salary or your self-employment income and classed as “other income” (Sonstige Einkünfte). Depending on your tax bracket and how much you earned in total, it will be subject to a rate of between 14% and 42%. You can work out the precise sum with this handy income tax calculator.
How do I record my profits in my tax return?
Unlike withholding tax, which is handled by your bank or broker on your behalf, you need to pay income tax on your crypto earnings yourself. That means you always need to submit a tax return—even if you’re employed and don’t have anything you want to offset.
In your tax return, you need to list your crypto earnings under “Other Income” (Sonstige Einkünfte) using the SO form (Anlage SO). Enter your profits under “other economic assets” (Andere Wirtschaftsgüter, lines 42-48 of the form). It’s important that you enter the dates on which you bought and sold the coins, plus their price, because these details have an impact on the tax you pay. (Remember the “speculative period” we mentioned earlier?) And by the way, you can also add professional expenses if they are linked to the sale of your cryptocurrency, which will reduce the amount of taxes you have to pay.
What happens with losses from cryptocurrency?
While crypto markets can be lucrative, the huge fluctuation in prices also means losses are common. If you decide to sell your crypto even though (or because!) it has lost value, you’ll have to record this in your tax return as well. Line 48 of the SO form is for declaring “profit/loss” (Gewinn/Verlust).
Have you sold other personal assets in the same year and made a profit on them, too? If so, the loss from the sale of your cryptocurrencies will be offset against your other profits, which will reduce your tax burden. If you’ve only suffered losses, they’ll be carried forward to future years, with no limit or expiry date. This means they’ll be offset against any future profits, which is why it’s really important that you note down all the relevant info when you trade crypto—using an Excel sheet, for example.
Bear in mind that if you wait until after the one-year speculative deadline to sell your crypto, you likely won’t pay any tax on it—including if it turned out to be a loss for you.
Taxes on cryptocurrency swaps
When you exchange your cryptocurrency for euros, it’s classed as a sale. But what happens if you swap one cryptocurrency for another? Well, it’s the same as a regular sale. That’s because you can still generate returns through swaps, depending on the price on the day. The speculative period ends when one cryptocurrency is swapped for another. So, for example, if you use Tether to buy Polkadot, this starts a new one-year period for the new cryptocurrency and ends the old one. And if you’re still not sure what kinds of cryptocurrencies are out there and which are the most popular, have a look here.
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