Bitcoin, Ethereum, NFT … what’s there to consider for tax purposes?

Digitization has progressed rapidly and has found its way into all areas of life: We now mainly work remotely, increasingly shop online, and increasingly invest in stocks. Furthermore, it is trendy to trade with cryptocurrencies.

That is why this promising topic is also one of our services. Our ACCONSIS experts are available to advise you on all questions in this regard. An initial overview of the most important points, such as how to proceed with earnings from crypto trading, can be found here.

How are profits from crypto art or cryptocurrency taxed?

In the case of familiar capital investments, such as shares, fund units, etc., the investor does not have to worry about tax matters, as the banks independently transfer the final withholding tax to the tax office, offsetting gains and losses (provided it is a domestic transaction).

The situation is completely different with cryptocurrencies (Bitcoin, Ether, Ripple and Co), especially since they are traded in a decentralized manner. While they are not treated as a foreign currency or as a capital investment, transactions related to cryptocurrencies may nevertheless become relevant for tax purposes.

Trading in cryptocurrencies is treated as a disposal transaction, as with other private assets. This means that only a speculative profit generated within one year since the acquisition must be taxed. This is not subject to the final withholding tax, but to the personal income tax rate.

This means that no income tax is incurred on the sale either! Also, private individuals do not have to calculate the sales tax in a sales transaction. This of course makes this new investment very attractive.

Tax-relevant transaction when paying with cryptocurrency

It is increasingly offered to pay for goods with cryptocurrency. However, this involves many tax pitfalls. Since payment with cryptocurrency is equated to the sale of the same, the capital gain from exchange must be taxed at the regular income tax rate if, in turn, the one-year period since the acquisition of the cryptocurrency has not yet elapsed. In this regard, the price of the purchased good or paid service determines the value of the disposal.

Tax calculation

This leads to some obligations for acquirers of virtual currencies: Each acquisition and sale transaction must be documented in detail, especially the exact time, the exchange rate, and the cost of the transaction. This is for the late determination of the capital gain or loss.

Digital currency traders can use either the first-in-first-out method, abbreviated as Fifo, the last-in-first-out method, abbreviated as LIFO, or an average valuation of profits within a year. Fifo assumes that investors will dump the digital coins they bought first, Lifo works the other way around, i.e. the coins bought last are sold first.

Offsetting speculative losses

If several transactions are made in a year that were both profitable and loss-making, they may be offset against each other (but also exclusively against each other). The costs associated with the purchase or sale may also be deducted from the profit.

Exemption limit in the amount of EUR 600,-.

The profits from the sale of other assets, which include a cryptocurrency and/or crypto artwork, do not have to be taxed until they exceed the exemption limit in the amount of EUR 600. However, if the profit is higher, even if it would be only one cent, the entire profit must be taxed.

Attention: A commercial trade always leads to taxation!

For trading in cryptocurrency or crypto art, there is currently no fixed limit at which the commercial activity is assumed. If the purchases and sales are regular, it is not a clear criterion for the commercial nature of the trade, but it could still be an indication. The professional appearance, the knowledge of the market and the sustainable profits, can further solidify the assumption of commercial activity. This would then result in the profits always being subject to taxation at the personal tax rate, irrespective of the one-year period.

Development in the digital world is advancing rapidly. If you want to ride this wave and possibly even profit generously from it, you must not ignore the tax pitfalls! Our ACCONSIS experts follow all current developments on this topic. That’s why you should get in touch with us even before you start trading on the World Wide Web.

Your ACCONSIS contact

Dr. Christopher Arendt

Fachanwalt für Steuerrecht 
Dr. Christopher Arendt 
Geschäftsführer der ACCONSIS

+49 89 547143
or by e-mail

My recommendation

The tax aspect behind trading cryptocurrencies or crypto art also poses many dangers and challenges. I would be happy to advise you individually on this and work with you to find solutions to safeguard your digital returns.

Crypto & Steuern I Interview mit Dr. Christopher Arendt I Trends #280

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