Tax tips for crypto traders

Bitcoin, Ethereum and Co.: tax tips for crypto traders

Tax consultant and cryptocurrency expert Nico Boy from steuerberaten.de gives nine tips on the tax treatment of profits and losses generated to be on the safe side for the next tax return.

More and more private individuals and companies are looking into the possibility of investing in cryptocurrencies. The wallets are quickly set up, the first trades are made, Bitcoin Optimizer profits and losses are achieved. What many traders do not deal with, however, is the tax consideration of the profits and losses from crypto trading. Many traders feel confronted with many questions at the latest when preparing their tax return. The following are therefore nine tax tips for crypto investors (and miners).

Surprising for many newcomers to the crypto space: Although the name cryptocurrency suggests otherwise, cryptocurrencies are not currencies in the true sense – but digital means of payment. In 2009, the first cryptocurrency, Bitcoin, was publicly traded. Today, there are thousands of different cryptocurrencies – of which only around 1,000 achieve a daily trading turnover of more than 10,000 USD. Unlike other currencies, cryptocurrencies are not issued or regulated by the state. Virtual currencies are legally neither (foreign) currencies nor capital investments. They are traded as other economic goods, which means that profits and losses can be relevant for tax returns.

Tax tip 1: Annual deadline

If you own crypto-coins for more than one year, the sale is generally tax-free. Moreover, you are not obliged to declare the income in your tax return. When calculating the one-year period, please note the following: The speculation period begins on the day following the acquisition and ends on the day of the sale.

Tax tip 2: Documentation

In order to secure tax exemption when trading with crypto-coins or to determine the taxable profit, the acquisition process should definitely be documented. In addition, for simplicity’s sake, the First In – First Out (FIFO) method can be applied. This assumes that the coins acquired first are also sold first.

Caution: In this case, a maximum profit may be determined if the coins bought first have risen sharply in value. For tax purposes, the following data should be documented when buying and selling:

  • Name of the cryptocurrency
  • Time of the trade
  • Number of coins traded
  • Price at the time of purchase or sale, and
  • Transaction fees.

However, an Excel spreadsheet is too prone to errors when trading cryptocurrencies intensively. Therefore, special software such as CryptoTax or CoinTracking is recommended.