The tax assessment of cryptocurrency can quickly become very complicated. With this guide, we want to make sure that you always have an overview of all the complexities in the crypto area and that you are clear from the start about the tax framework that needs to be taken into account.
Likewise, we’d like to discuss the opportunities to positively impact your trading performance with proper cryptocurrency tracking. Accointing can simplify your crypto taxes and save you sleepless nights with an uncertain tax burden. Even with the best tools, there are many unanswered questions about cryptocurrency taxation. In this guide, you’ll find the answers you need around taxes and cryptocurrencies for 2022.
Crypto tax in Germany – What you need to know
Are cryptocurrencies taxed in Germany?
In Germany, trading with cryptocurrencies is considered a private disposal transaction according to §23 EStG. The purchase of cryptocurrencies with a fiat currency is not directly taxable, only when selling or exchanging the cryptocurrencies taxable gains and losses can arise.
Income received with cryptocurrencies (e.g. from staking) counts as taxable income according to §22 No.3 EStG.
Gains and losses from futures or margin trading count as income from capital assets according to §20 EStG.
How are cryptocurrencies classified for tax purposes and why are they taxed at all?
In principle, cryptocurrencies are intangible assets and thus gains realized are taxable as income from private sales transactions. The fiscal court of Baden-Württemberg followed this assessment only at the end of 2021 and confirmed that cryptocurrencies are intangible assets and that capital gains are to be classified as income from sales transactions. According to the tax court, the tax law concept of an asset includes “all pecuniary advantages whose acquisition costs the taxpayer something” and “which are amenable to independent valuation”.
When are crypto gains tax-free and what is the speculation period?
The tax-relevant profit when trading cryptocurrencies is generally calculated from the sum of the disposal price (selling price) minus the acquisition price (purchase price) and the fee. Whether this profit is taxable or tax-free is determined on the basis of the speculation period or the holding period. If the cryptocurrency was acquired more than one year ago without the cryptocurrency being sold, the gain is tax-free.
What types of taxable income can you earn from cryptocurrencies as a private investor?
The decisive factor is whether cryptocurrencies are only traded or also used to generate further income, such as with Defi (Decentralized Finance) or Staking. According to German tax law, a total of three types of income can be generated with cryptocurrencies.
- Trading cryptocurrencies on a central trading exchange (CEX) or decentralized trading exchange (DEX) counts as a private disposal transaction according to §23 EStG.
- Income from cryptocurrencies, such as income from staking or lending, counts as other income according to §22 No. 3 EStG.
This type of income is taxed at the personal income tax rate of 0-45%.
Income from capital assets (§20 EStG)
The income from futures or margin trading generally counts as income from capital assets according to §20 EStG.
This type of income is taxed at the flat capital gains tax rate of 25%.
Can the tax office even get to see crypto gains?
Everything on the blockchain is fully visible to anyone who knows the public address of a wallet, and even taxable profits on trading exchanges can be attributed through KYC. Even though it currently seems that authorities cannot always track whether and how much the taxpayer’s profits are, there are many ways with appropriate on-chain tools to track cryptocurrencies and assign them to a person. The authorities have long caught up and will continue to pay more attention to cryptocurrencies in the future.
Is the purchase of a cryptocurrency subject to tax?
The purchase of a cryptocurrency with a fiat currency is not taxable and does not need to be reported to the tax office. However, it is important to record the acquisition price and acquisition date directly so that Accointing can later refer to the correct data when calculating the capital gain.
Is the sale of cryptocurrencies against fiat currencies taxable?
The sale of a cryptocurrency against a fiat currency can be taxable depending on the holding period and counts as a private disposal transaction according to §23 EStG. The disposal price can be determined quite easily on the basis of the fiat currency.
Is cryptocurrency swapping tax-exempt or taxable?
The swap of one cryptocurrency for another cryptocurrency may also be a taxable event. This means that every time one cryptocurrency is exchanged for another, a taxable gain and loss can occur. This is also true when swapping between different stablecoins. Conceptually, a swap is always a sale of the cryptocurrency for euros and at the same time an acquisition of the new cryptocurrency with euros. Depending on the holding period, an swap therefore also triggers a tax liability.
When do you make taxable profits and how is it determined when selling cryptocurrencies?
The taxable profit for cryptocurrencies is generally calculated from the selling price minus the purchase price. So if you buy a Bitcoin for 1,000 euros and later sell the Bitcoin for 10,000 euros, a profit of 9,000 euros has been made. Whether this profit is taxable or not is determined by the holding period in Germany.
Sales proceeds (disposal price) – cost basis (acquisition price) = gain / loss on disposal
Sale proceeds: the amount for which one has sold the cryptocurrency, minus the fee, should the cryptocurrency have been sold against a fiat currency.
Cost basis: the amount for which the cryptocurrency was purchased, plus all fees.
What is the holding period or the speculation period?
In German tax law, the holding period is the period between the acquisition and sale of a cryptocurrency. If the cryptocurrency is held for more than one year without being sold or swapped for another cryptocurrency in between, the gain is tax-free. Depending on the valuation method, in case of sale, acquisition price and acquisition date of the sold asset are used and capital gain and holding period are calculated.
How is profit or loss calculated for a trade on a central trading exchange such as Binance or Coinbase?
The basic rule also applies here:
Sales proceeds – cost basis – fee = gain / loss on disposal.
The data of the purchase or sale on a central trading exchange is always recorded in a transaction. There is a direct relation between the sold asset and the newly acquired asset including the fee paid. Thus, it is quite easy to establish a relation between the acquisition price of the newly purchased cryptocurrency and the disposal price of the sold cryptocurrency.
Example: We sell Bitcoin (1 BTC) and receive Solana (100 SOL). In the case, the selling price of 1 BTC, would be the acquisition price of 100 SOL, which is the market value of 100 SOL at the time of purchase. This acquisition price is stored as the cost basis, so that if the Solana is sold at a later date, the correct cost basis can be retrieved.
The capital gain / loss is taxable if the period between the stored acquisition date (purchase date) and the disposal date (sale date) of the bitcoin is less than one year.
At what point do you have to report crypto gains to the tax office?
If the total amount of capital gains from trading cryptocurrencies is below the exemption limit of 600 euros, this does not have to be disclosed in the tax return. Nevertheless, it is recommended to inform the tax office even in the case of taxable gains below 600 euros and to transparently disclose on the basis of the tax report that the total taxable amount in the tax year does not exceed the exemption limit.
By submitting the tax report, tax-free profits with a holding period of more than one year can be proven beyond doubt without any problems on the basis of the transaction history. Experience has shown that this will reduce the number of queries in future tax returns regarding the tax-free profits already achieved in previous years. Basically, everyone with taxable profits below 600 euros has the choice to inform the tax office or not.
What is the difference between exemption limit and allowance?
Tax-free limit for private sales transactions means that any taxable profit achieved up to 600 euros is tax-free. If a total of 601 euros is generated from private sales transactions and thus exceeds this limit, the profit must be fully taxed.
In the case of the tax-free allowance, on the other hand, only the additional amount has to be taxed. An example of this would be the basic tax-free amount, which is 9,984 euros for each employee in 2022. Every additional euro above this amount must be taxed, whereas the 9,984 euros always remain tax-free regardless.
When should crypto losses be realized for tax purposes?
If a purchased cryptocurrency loses a lot of value, it may make strategic sense to think about selling it. The loss is relevant for tax purposes if the holding period is less than one year. This allows realized taxable capital losses to be offset against taxable capital gains in the same year. If one waits longer than one year before selling, the losses are outside the holding period and therefore no longer relevant for tax purposes.
Selling cryptocurrencies at a loss is easier when taxable gains are offset at the end of the year, thus saving taxes. So, one should always consider selling if the cryptocurrency in the portfolio has fallen sharply and was bought less than a year ago.
What are the valuation methods FIFO, LIFO, HIFO?
The valuation method determines which cryptocurrency will be used for tax valuation upon sale.
Purchase: 01.02.2021 1 BTC for 5.000 Euro
Purchase: 01.05.2021 1 BTC for 8.000 Euro
Sale: 01.03.2022 1 BTC for 20.000 Euro
FIFO method (First-In First-Out):
What was bought first is sold first.
The first BTC purchased on 01.02.21 is used for the sale, so the acquisition date is 01.02.2021 and the acquisition price is 5,000 euros. The capital gain in this case would be 20,000 euros – 5,000 euros = 15,000 euros.
LIFO method (Last-In First-Out):
What was bought last is sold first.
The last purchased BTC from 01.05.21 is used for the sale, so the acquisition date is 01.05.2021 and the acquisition price is 8,000 euros. The capital gain in this case would be: 20,000 Euro – 8,000 Euro = 12,000 Euro.
HIFO method (Highest-In First-Out):
Here, it is not the date that is relevant, but the amount of the acquisition price.
The BTC with the highest acquisition price is used first in the event of sale, so the acquisition date is 01.05.2021 and the acquisition price is 8,000 euros. The capital gain in this case would be: 20,000 euros – 8,000 euros = 12,000 euros.
Which valuation method is accepted by the tax office?
The method generally accepted by the tax authorities is the First-in First-Out (FIFO) method. The asset acquired first is sold first. The Last-In First-Out method (LIFO) or the Highest-in First-Out method are generally not accepted.
BMF Update* (10/05/2022):
“For simplification purposes, it may be assumed for the purposes of determining the value that the tokens acquired first were sold first (first in first out, FiFo).”
The latest BMF draft confirms that the already existing assessment is correct and FIFO is the generally applicable method.
Does the valuation method apply per wallet or per cryptocurrency?
The valuation is performed for each individual cryptocurrency and applied to each individual wallet / exchange. The recognized method of the tax office, is the wallet-based FIFO method, i.e. the valuation for each individual wallet. The method of valuing all cryptocurrencies in a large common wallet is generally not accepted.
BMF Update* (10/05/2022):
„A wallet-based approach applies. The selected method is to be maintained until the units of a virtual currency or a certain type of other tokens in this wallet are completely sold.“
This confirms that the selected valuation method is to be applied per wallet and is accepted by the tax office.
May the valuation method simply be changed after another method has already been used?
In general, the valuation method may not be changed if a tax return has already been filed and therefore a method has already been selected. The valuation is always performed for the complete transaction record and is not to be delimited in the individual tax years.
Are foreign currencies such as USD, CHF or GBP also taxed?
It is quite common to have different foreign currencies in the deposit depending on the trading exchange even in the short term. Although many exchanges now support deposits in euros, there are still many trading exchanges that only support USD or another foreign currency. It is often forgotten that these foreign currencies are just as fiscally relevant as cryptocurrencies. The same rules apply for tax purposes, so the exchange rate gain is taxable if held for <1 year and tax-free if held for more than one year. Capital gains with cryptocurrencies as well as with foreign currencies both count as private sales transactions, which means that gains and losses can be easily offset against each other.
1000% gain but held less than a year, should you sell?
Basically, this is always a strategic decision where both the profitability and the tax implications of a sale should be considered. From a tax perspective, it is recommended to only sell cryptocurrencies that have been held for more than one year, as this way the capital gain is tax-free and not taxed at the personal income tax rate of up to 45%. However, it is also not uncommon that a cryptocurrency loses 90% of its value again after one pump and so from the tax-free gains, not much remains.
There are always several factors to consider and should you succeed in selling close to the all-time high, even if the holding period is less than a year, it can be well worth it. It is always important to set aside a part of the profit for the applicable tax after the sale.
SCAM or Rug Pull – can you deduct this loss?
In a rug pull, the initiator of the cryptocurrency generally disappears, leaving behind a worthless asset with no liquidity. In order to claim the loss for tax purposes, one has to sell the cryptocurrency within the holding period. However, no one wants to buy this coin anymore and so it is difficult to find a buyer. One option would be to send the Coins to a burn address and thus effectively trade or sell them for 0 Euros. This process should be reported to the tax office and explained in writing why the coin was sent to a burn address for sale and is no longer in your own possession.
Cryptocurrencies stolen or Private Key forgotten, can you deduct the lost coins as a loss?
The theft or loss of cryptocurrencies tends not to be tax deductible due to lost or accidentally shared Private Keys or Seed Phrase with third parties. The general rule here is NOT YOUR KEYS, NOT YOUR COINS. The loss is usually only tax deductible if the cryptocurrency was actually sold, which does not apply in this scenario.
High profits were made on the exchange or wallet, but the password was lost?
Unfortunately, the lack or loss of access to an exchange or wallet does not exempt you from the obligation to report and pay taxes on taxable profits. In that case, “NOT YOUR KEYS, NOT YOUR COINS” does not apply.
Even if it is difficult to trace the data without access to the wallet or the exchange, you must try to do so. If it is a wallet, you may be able to reconstruct the data from the blockchain and to restore access to the exchange, you should try to contact the respective support. Although cases such as that of Mt.Gox from 2014 have become rarer, they can still occur. For this reason, it is very useful to track the data from the beginning and thus always keep control over the overall picture of trading activities, regardless of individual exchanges or wallets.
Do taxes occur when you HODL?
If cryptocurrencies are merely held on a wallet or transferred between wallets and trading exchanges, no taxable transaction occurs and thus HODLN of cryptocurrencies is tax-free.
Do you have to declare anything on your tax return when you HODL?
Are internal transfers between wallet and exchange tax free?
The transfer of crypto to the wallet, whether hot or cold wallet, is not a taxable transaction. However, the withdrawal and deposit must be marked as an internal transfer so that the cost basis and acquisition date can be transferred and properly accounted for upon sale.
One should be careful not to transfer long term hosted cryptocurrencies to a trading exchange or wallet if one does not want to sell them there. Due to the valuation method that is generally applied to each individual wallet, the cryptocurrencies acquired last are always sold according to FIFO. So if you transfer e.g. “old Bitcoin” to Kraken or Bitpanda, they will be sold first, unless there are still Bitcoin with an older acquisition date on the trading exchange. To avoid this problem, one could create a trading exchange and a HODL exchange and only buy and sell there accordingly.
If income from Staking is just stored in an “Unhosted Wallet”, does the tax office even know about it?
Even though in the past tax offices were not always able to verify all transactions and assign wallets to a person, there are now many more ways to determine the origin and path of cryptocurrencies. To get crypto into the wallet first, one probably deposited fiat currencies and purchased cryptocurrencies through an exchange with KYC (know-your-customer) such as Coinbase, Binance, Kraken, Bitpanda, FTX, Huobi. So it can be assumed that the tax office is quite capable of tracking the capital gains from the exchange and wallet and assigning them to an individual. Likewise, stricter rules for the verification of wallets are being discussed as part of the Transfer of Funds Regulation (TFR), which will greatly change anonymity in the crypto sector in the future.
Income from cryptocurrencies
Cryptocurrencies as rewards, how is that taxed and how is the value determined?
Meanwhile, you can get cryptocurrencies from a variety of different sources without ever having bought them. In most cases, you have to deposit your own cryptocurrencies or actively make a contribution. In principle, it can be assumed that in the case of a service, the inflow of cryptocurrencies is taxable. It is usually other income according to §22 No.3 EStG or in individual cases also capital gains according to §20 EStG.
The amount of income is determined by the market value of the cryptocurrency received at the time of receipt. This is usually the time at which the tokens are deposited in the wallet and you can dispose of them independently, i.e. sell them if necessary.
How do you determine the market price or market value for a deposit with no counterpart?
The BMF has indicated in the new draft that the following applies: “In the absence of stock exchange prices, a price from a trading platform (e.g. Kraken, Coinbase and Bitpanda) or a web-based list (e.g. https://coinmarketcap.com/de) may be applied.” The acquisition cost of the cryptocurrency received shall be the market values provided by Coinmarketcap at the time of receipt of the cryptocurrency.
- Deposit of Cardano from Staking (100 ADA).
- market value on CMC at the time of deposit of 1 ADA = 1 Euro
- the taxable inflow is 100 Euro (100 x 1 Euro)
- the 100 Euro are taxable as income according to §22 No.3
Is the income generated commercially or privately?
The question often arises as to when the income is no longer other income according to §22 No. 3 EStG, but rather commercial income according to §15 EStG. In principle, four criteria must be met:
- Intention to make a profit
- Sustained activity
- Participation in general economic transactions
In addition, the following points must apply:
- No private asset management
- No self-employed work (§18 EStG)
- No agriculture and forestry (§13 EStG)
Depending on the type of income, these points must be examined individually, but in general the area of private asset management is rarely left, so that it is usually not commercial income. However, it should be noted that income from mining and masternodes can be commercial income.
Bitcoin from mining, how is it taxed?
In order to evaluate the revenue from proof-of-work mining for tax purposes, one must first distinguish between the different forms of mining:
- Solo Mining
The times when you “found” a BTC block while mining with your home PC and initially received 12 BTC for it are long gone. In the meantime, mining is mostly done with custom-built mining equipment in countries with the lowest possible electricity costs. Therefore, operating solo mining in Germany is usually no longer profitable. Solo mining could meet all the criteria of the new BMF letter and is therefore more likely to be classified as commercial if the mining income is permanently invested.
- Pool Mining
Several miners bundle their computing power (hash power) and thus increase the chance of finding a block. The rewards are shared in proportion to the hash power. Whether the income is to be classified as commercial or private is generally difficult to say and should be checked by an expert in case of doubt.
- Cloud Mining
By purchasing computing power from a third-party provider, one receives a share of the mining rewards. This is not self-employed and therefore a commercial nature can usually be ruled out. The rewards are therefore to be classified as private and taxed as income according to §22 No. 3 EStG.
If the income is considered private, the market value at the time of inflow is taxed. If the income is commercial, slightly different rules apply, but there the expenses for electricity and equipment are deductible as business expenses.
BMF Update* (05/10/2022): The BMF says that mining can be private or commercial income. In principle, it is commercial if:
- there is an intention to repeat the activity, i.e. the activity is sustainable
- is suitable to generate profit in the long run
- participates in the economic traffic, since the block creator provides the computer power for the verification of the transaction data and their inclusion in a new block of the blockchain to be created
- the block creation does not constitute private asset management
- there is a co-entrepreneurship.
Depending on the type and scope of mining, all points can apply and be classified as commercial. The block rewards and the transaction fees received count as commercial income.
Ethereum from staking, how is it taxed?
If you enter the coins into a staking pool, you participate in the block creation through proof-of-stake and receive rewards in the form of additional cryptocurrencies. Whether it is the same cryptocurrency as the one used for staking or a completely new one is not relevant for tax purposes. What is decisive is that the inflow of Staking is taxable as income according to §22 No.3 EStG, valued at the market value at inflow and later taxed at the personal income tax rate.
If one receives daily Staking Rewards in the amount of 0.1 ETH with a value of 100 Euro (market value at the time of inflow), one has daily income and must pay tax on it accordingly. It does not matter whether one receives the Staking Rewards on a central trading exchange (Kraken, Coinbase, Binance) or on an “Unhosted Wallet” (Metamask, Trezor). In both cases, the inflow is taxable at market value and is determined using Coinmarketcap.
What is forging and is there a tax difference from the familiar staking?
The consensus algorithm Proof-of-Stake is divided into active and passive staking by the BMF in the latest letter and brings the term forging into play. Staking as a delegator or validator is considered “active”, whereas participation in a staking pool is considered “passive”.
In the sense of the German Federal Ministry of Finance (BMF), active staking has the term forging and means that one actively participates in the block creation during Proof-of-Stake (PoS) and, as a validator, receives corresponding income for the validation of the blocks. In the same way, in the so-called Delegated Proof-of-Stake (dPoS), one can be actively responsible for the validation of the blocks as a selected delegator and receive revenues. In both cases, the participant receives revenue from block rewards and transaction fees, which can be a commercial activity depending on the scale.
According to the BMF, passive staking is the sole participation in a staking pool, as one does not act as a forger oneself, but only makes one’s cryptocurrency available. The cryptocurrency does not have to be transferred to another wallet in the process, but only blocked for a certain period of time. As a reward, depending on how big the stake is, one receives a share of the block reward and transaction fees of the staking pool. Participation in a staking pool is to be regarded as a private activity and thus to be classified for tax purposes as income according to §22 No.3 EStG. In the case of staking on central trading exchanges such as Kraken or Binance, one can generally assume passive staking.
In principle, it is therefore decisive whether one actively participates in the block creation with the cryptocurrencies used (Stake) or passively participates in Staking merely by providing a Stake without taking over the block creation. According to the latest BMF letter, the holding period of the stake does not change, so that capital gains are tax-free after one year.
Lending cryptocurrencies and receiving Lending Rewards, how is that taxed?
By lending the use of one’s own cryptocurrencies for a certain period of time, income can be earned in the form of the lent cryptocurrency or a new cryptocurrency. These received lending rewards are taxable according to §22 No.3 EStG and are to be valued with the market value at the time of the inflow. Lending the cryptocurrency is usually not a taxable transaction, so that the holding period of one year continues during the lending process.
Revenue from a masternode, is that commercial?
A masternode is a special node in the blockchain and acts as a network node with special tasks such as monitoring the network or executing transactions. The operation of a masternode usually requires a server and the deposit of a certain number of the respective cryptocurrency. In return, the masternode operator receives a share of the block reward. Since one generally actively participates in the block creation, this is rather to be regarded as a commercial activity according to the BMF.
How are airdrops taxed?
In the case of an airdrop, the user receives a certain number of a mostly new virtual currency without having to actively do anything for it or without a service conditioning the amount of the airdrop received. If the user was randomly selected for the airdrop or merely submitted his data via an online form for the technical distribution of the tokens, such as the wallet address, the inflow of the airdrop is tax-free.
An airdrop becomes taxable if a service conditions the receipt of the airdrop. This is the case if, for example, images or projects are shared on Twitter and the link must be entered via the online form as proof. Even though the distribution of the token is often advertised as an airdrop on social media, it is more of a bounty in that case, as the distribution is linked to a specific performance. The inflow of the tokens is in that case taxable as other income according to §22 No.3 EStG and is valued at the market value at the time of the inflow.
However, if chance decides on the receipt of the tokens, the inflow is tax-free. This is also the case if a certain performance in the form of shared images on Twitter conditions participation in the distribution or random allocation.
What is the market value of the airdrop if it has no value yet?
Generally, the cost basis is the market value at the inflow of the cryptocurrency. However, if the currency is not yet listed on an exchange and therefore no market price can be determined, the value 0 must be applied.
If the cryptocurrency from the airdrop is sold within one year, the full sales value must be taxed. If the cryptocurrency is sold within one year, not the full sales value but only the profit between acquisition and sale has to be taxed.
How are hard forks taxed?
A hard fork can be compared to a split of the blockchain, whereby the original asset and the new asset continue to exist simultaneously from the time of the split. The best known example is Bitcoin as the originating asset and Bitcoin Cash as the new asset. From a tax perspective, the inflow of the new asset is not taxable.
Now the question of acquisition date and cost basis (acquisition value) arises. Acquisition date of the new asset is the date of acquisition of the original asset, if this original asset is already held for more than one year when the hardfork is received, the direct sale is tax-free in any case. If the new asset is sold within one year of the acquisition of the original asset. Then acquisition costs are determined and apportioned based on market values. In most cases, however, the acquisition value is 0 euros because no market value can be determined for the new asset during the hard fork.
How are bounties or other income in cryptocurrencies taxed?
One should always ask what and whether a benefit is related to earnings. In general, premiums and other income are linked to a benefit and are subject to tax. They belong to the income from benefits according to §22 No. 3 EStG and are valued at the market value.
Are cryptocurrencies from a referral bonus taxable?
This has not been explicitly stated by the BMF, but in general the generally accepted principle applies that income generated by a benefit is taxable according to §22 No.3 EStG. DIe performance would be in the case to recommend other people and in return id These are valued at the market value at the time of inflow and count as income from benefits.
Taxes for Decentralized Finance (Defi)
Are DeFi transactions in the wallet taxable?
Trading on a decentralized exchange such as Uniswap or Pancakeswap are as taxable as trading on a centralized exchange. In contrast to a centralized trading exchange, where the trade data is provided via CSV or API, one is responsible for the correct documentation of the defi transactions with an Unhosted Wallet (e.g. Metamask). Depending on the blockchain, importing the data is quite straightforward and can be done using the public wallet address and the blockchain data. Only the fiscal classification of the transactions can be more complicated depending on the scope and usually has to be done manually by the user.
How do you calculate profit or loss on a decentralized trading exchange such as Uniswap?
Sales proceeds – cost basis – fee = gain / loss on disposal
The incoming and outgoing payments when buying or selling on a decentralized trading exchange are usually automatically classified as “swap”, otherwise the classification has to be done manually.
Example: We sell Polkadot (100 DOT) and receive Tether (3000 USDT). In that case, the sale price of 100 DOT, would be the market value at the time of payout and the acquisition price of 3000 USDT is the market value at the time of tether deposit. This acquisition price is stored as the cost basis so that if the tether is sold at a later date, the correct cost basis can be used.
The capital gain / loss is taxable if the period between the stored acquisition date (purchase date) and the disposal date (sale date) of the polkadot is less than one year.
Can Ethereum gas fees be deducted?
Gas fees associated with the acquisition of an asset, are part of the cost basis of the acquired asset or may be allocated as an advertising expense associated with the sale transaction if that transaction was incurred as a separate transaction in the blockchain. Gas fees that cannot be directly associated with the acquisition of a crypto asset are generally not deductible under current assessments. If significant gas fees have been incurred, it is advisable to consult a tax advisor.
How are rewards from liquidity mining and yield farming taxed?
The taxation of LP mining is very controversial, as there is still no clear statement from the Federal Ministry of Finance and liquidity pools are also not included in the current BMF letter. Basically, there are two views on how liquidity mining is to be classified and mapped under tax law.
In order to participate in liquidity mining, one must provide one’s cryptocurrencies in a liquidity pool on a decentralized trading exchange such as Uniswap. For providing the liquidity, one receives liquidity rewards. At first glance, this does not sound particularly complicated, as one might assume that rewards are treated similarly to, for example, staking rewards. Unfortunately, however, it is not quite that simple, which is why two tax law views have currently emerged.
Tax classification (view 1):
Liquidity Rewards are other income and the cryptocurrencies are not sold when entering the pool.
Entry into the pool: liquidity can only ever be provided in the form of a trading pair. This means you have to trade two cryptocurrencies (e.g. UNI and DAI) on Uniswap for one LP token. If the LP token is added to the liquidity pool, there is no sale according to §23 EStG. The receipt of the LP Token is rather to be seen as a kind of receipt, for the share in the total Liquidity Pool.
Tracking in Accointing: by the exchange of the cryptocurrencies for the LP Token not being a taxable transaction, the payout does not have to be classified as a “swap”. Since one is still in possession of the coins, they have to be stored somewhere. For this, one can manually create an “LP Wallet” and add the payouts from DAI and UNI as deposits on the wallet in mirror image. Thus, the transfer is automatically recognized as an internal transfer and the coins are initially secured in the LP Wallet.
*Update: The OFD Hessen has confirmed this view and does not see the entry into the pool as a taxable sale, according to this the LP Token is rather an “Entitlement Certificate” which maps the ownership of the tokens in the pool.
Receipt of Liquidity Rewards: The receipt of the Liquidity Rewards is to be declared as other income according to §22 No.3 EStG, whereby the market value is to be taxed at personal income tax rate upon inflow. Whether the inflow takes place directly or only upon withdrawal from the pool is questionable and varies from pool to pool. From a technical point of view, the valuation of the inflow would be presentable upon receipt on the Wallet and thus at the time of disposal of the Liquidity Rewards.
Withdrawal from the pool: the withdrawal of liquidity from the pool is done by removing the LP token from the pool again and receiving back the individual trading pairs. The inflow is not a new acquisition of the cryptocurrencies, which also leaves the holding period unaffected.
Tracking in Accointing: the exchange of the LP token for both cryptocurrencies results in a payout of the LP token and a deposit of each of the UNI and DAI in the blockchain. The deposits can in turn be added as payouts on the previously created “LP Wallet” in a mirror image. This recognizes the deposit and withdrawal as an internal transfer and continues the cost basis and acquisition date of the original tokens.
Impairment Loss: The value of the deposited DAI and UNI is generally equally distributed in value upon entry into the pool, i.e. 50/50. An impairment loss occurs if one of the tokens appreciates disproportionately to the other. Thus, if the price of UNI rises sharply, a balance is restored in the pool by so-called market makers. Therefore, the denomination of the trading pairs changes constantly, so that there is always a 50/50 ratio in terms of value. This means that you do not get the same amount back when you leave the pool. With the only Hodln of UNI one would have made more profit, since due to constant value adjustments of the equilibrium in the pool, the quantity of the UNI sank continuously and one profits thus from the increase in value less. This “loss” is also called impairment loss.
Tracking of Impairment Loss in Accointing: If one has deposited (e.g. 100 UNI and 1000 DAI) in the Liquidity Pool and receives back 60 UNI and 1800 DAI, there will be a shortfall of 800 DAI and a remaining balance of 40 UNI in the created “Liquidity Pool Wallet” when a payout is made. To make up for this, one can manually create a trade before the payout, buying 800 DAI and selling 40 UNI. This would be one way to reflect the impairment loss in the manually created wallet.
Tax Classification (view 2):
Liquidity Rewards are capital gains and trade pair is sold upon entry into the pool.
Entering the pool: Liquidity can only ever be provided in the form of a trading pair. This means I have to trade two cryptocurrencies e.g. UNI and DAI on Uniswap for one LP token. If the LP token is added to the liquidity pool, a sale takes place according to §23 EStG and depending on the holding period of the trading pairs, any capital gains that arise are taxable.
Tracking in Accointing: the exchange of the cryptocurrencies for the LP token results in a payout of UNI and DAI in the blockchain respectively. The payouts can be marked as a “swap” and thus can be classified as a sale at market value.
Receipt of Liquidity Rewards: The receipt of the Liquidity Rewards would have to be declared as capital gains according to §20 EStG, whereby the market value would be taxed at a flat rate of 25% upon inflow. Whether the inflow occurs directly or only upon withdrawal from the pool is questionable. From a technical point of view, the valuation of the inflow upon receipt on the Wallet and thus at the time of the disposal of the Liquidity Rewards would be presentable
Withdrawal from the pool: the withdrawal of liquidity from the pool takes place by removing the LP token from the pool again and receiving back the individual trading pairs. The inflow in that case would be a new acquisition of the cryptocurrencies, which would also start the holding period all over again.
Tracking in Accointing: the exchange of the LP token for both cryptocurrencies results in a payout of the LP token and a deposit of each of the UNI and DAI in the blockchain. The deposits of the cryptocurrencies can be marked as a “swap” and thus can be classified as an acquisition at market value.
NFT taxes when trading and minting NFTs
How are NFTs taxed?
If an NFT is sold, the capital gain is taxable according to the same rules as the sale of cryptocurrencies. According to §23 EStG (German Income Tax Act), the capital gain counts as a private disposal transaction and is taxed at the personal income tax rate. If the non-fungible token (NFT) is held for more than one year, the gain is tax-free. The problem with recognizing NFTs for tax purposes is usually that cost basis and value are more difficult to determine, because there is usually no price data for NFTs. Therefore, the acquisition value of the NFT usually has to be added manually, based on the value of the asset sold for it.
Accointing.com can help you keep track of all your NFTs and cryptos in one central place and provide you with the most accurate crypto tax report.
Is the purchase of a NFT taxable?
The purchase of the NFT is not directly taxable, however, usually only one cryptocurrency (e.g. Ethereum, Solana or Tezos) can be used to buy an NFT on a decentralized marketplace (Opensea, Magic Eden). So, at the moment of NFT purchase, another cryptocurrency is sold at the same time. Depending on the holding period of the sold cryptocurrency, this can lead to a taxable event.
How are NFT trading profits calculated?
When trading with NFTs, one should be aware that the valuation of profits and losses is always to be made in euros. This means that if you buy and sell an NFT for the same amount of cryptocurrency, you may still have taxable capital gains/losses.
- 01.01.22 Buy Bored Ape #955 NFT for 100 ETH (value 200.000 Euro)
- 01.05.22 Sale of Bored Ape #955 NFT for 100 ETH (value 120.000 Euro)
Gekauft und verkauft wurde das NFT mit 100 Ethereum, jedoch hat sich der Wert der ETH verändert und somit ist ein steuerpflichtiger Verlust von 80.000 Euro entstanden, obwohl man diesselbe Menge an ETH zurückerhält.
Staking with NFTs, is that controllable?
Similar to normal Staking, the inflow of Staking Rewards is taxable and counts as other income according to §22 No.3 EStG. In general, the market value of the cryptocurrency received is relevant, but many NFT tokens are usually not yet listed on an exchange or Coinmarketcap, so there is no price data. In this case, the acquisition value would be set at 0 euros and in the event of a later sale, the complete sales proceeds must be taxed.
Using Accointing’s portfolio tracker and crypto tax calculator
Do all data from wallets and exchanges need to be imported?
In order for Accointing to provide an accurate tax report, it is important that all wallets and exchanges are imported, including cold-storage wallets such as Trezor or unhosted wallets such as Metamask. This is important because later, for each sale, the correct acquisition price and acquisition date must be processed, depending on the valuation method. Crypto taxes in Germany depend significantly on the holding period, so if data of a wallet is not imported or deposits and withdrawals between wallets are not linked, neither the correct acquisition price, nor the correct acquisition date can be identified. For the calculation of the holding period and for the documentation of the transaction for the tax office, the integration of this information is mandatory.
Do you have to connect internal transfers?
Without marking internal transfers, the acquisition price and acquisition date of many cryptocurrencies would not be correct. Therefore, it is necessary to always import the data completely and reconstruct transactions in case of missing data, if necessary. If the amount and time of the withdrawal from Wallet A matches the deposit to Wallet B, the transfer is automatically recognized and linked in Accointing.
Do you have to classify deposits or withdrawals?
The different classifications have different tax implications. For deposits, the basic issue is whether the inflow is taxable or not. For example, if you receive a deposit from staking, you can classify it as staking in Accointing. In this case, the inflow is valued at market value at the time of the deposit and is taxable. If the cryptocurrency was only purchased on a DEX (Decentralized Trading Exchange), it can be classified as a “swap”. In this case, the inflow is not taxable, but at the time of the deposit, the acquisition price and the acquisition date are stored and taken into account in a subsequent sale. Similarly, disbursements can also be classified and, depending on the circumstances, can be taxable or tax-exempt disposals.
Is income from staking, liquidity mining, airdrops or hardforks automatically classified?
Depending on the type of import and depending on the exchange / wallet, deposits and withdrawals are already pre-classified. In most cases, however, you have to classify them yourself, because every user knows best from which source the cryptocurrencies originate.
Deposit classifications and the tax consequences?
Deposits and withdrawals on the wallet or trading exchanges must be correctly classified if they are not internal transfers and are already linked.
Below is an overview of which classifications can be selected for deposits and what tax implications they have:
|Classification type||Tax valuation||Type of income|
|Mining||taxable||§22 Nr.3 EStG|
|Bounty||taxable||§22 Nr.3 EStG|
|Masternode||taxable||§22 Nr.3 EStG|
|Income||taxable||§22 Nr.3 EStG|
|Staking||taxable||§22 Nr.3 EStG|
|Income||taxable||§22 Nr.3 EStG|
|Liquidity Pool||taxable||§22 Nr.3 EStG /§20 EStG|
|Margin profit||taxable||§20 EStG|
Classifications in withdrawals and the tax consequences?
The following is an overview of which classifications can be selected for disbursements and what tax effects they have:
|Classification type||Tax valuation||Type of income|
|No classification||taxable (depending on holding period)||§23 EStG|
|Trade||taxable (depending on holding period)||§23 EStG|
|OTC||taxable (depending on holding period)||§23 EStG|
|ICO||taxable (depending on holding period)||§23 EStG|
|Swap||taxable (depending on holding period)||§23 EStG|
|Deposit||taxable (depending on holding period)||§23 EStG|
|Gamble||taxable (depending on holding period)||§23 EStG|
|Fee||taxable (depending on holding period)||§23 EStG|
Do you need crypto tax software to calculate crypto taxes?
Theoretically, you can try to manually record all cryptocurrencies with a spreadsheet. However, anyone with more than a few transactions and multiple wallets / trading exchanges will be able to confirm that this is extremely laborious or nearly impossible. Accointing.com makes it easy for you and helps you connect all your exchanges and wallets, classify them correctly and automatically create a tax report of all your crypto transactions customized for the tax office.
When do you need a tax advisor and how can you find one?
If you have been trading with cryptocurrencies for years, have filed a tax return without disclosing crypto or have not filed a tax return at all, despite taxable crypto gains, you must subsequently report your gains to the tax office. In doing so, completeness and accuracy are mandatory, which is why it is recommended to consult a tax advisor in such cases. You are welcome to use the services of our cooperation partner WINHELLER.
Income tax return and the tax office
What is my personal income tax rate in 2021?
The personal income tax rate is based on the amount of gross annual income and is regulated in the Income Tax Act as follows for the year 2021:
|Tax rate||Single||Married (joint assessment)|
|0%||0€ – 9.744 €||0€ – 19.488€|
|14% – 42%||9.745€ – 57.918€||19.508€ – 115.837€|
|42%||57.919€ – 274.612€||115.838€ – 549.225€|
|45%||ab 274.613€||ab 549.226€|
What is the church tax in 2022?
The church tax is generally 9%, only in states like Bavaria and Baden-Württemberg it is 8%. It is important to note that the 8-9% church tax is not credited against gross income, but against the income tax payable.
What period does the tax year include in the Germany?
The tax year for private individuals comprises a calendar year and is therefore valid from 01.01 – 31.12 of the respective year. Accordingly, the tax report contains all income that arose during this period. Only realized profits and losses within this period are relevant for tax purposes. So if you notice at the end of the year that gains are taxable and taxable losses have not yet been realized, this should be done before the end of the year. An overview is provided by the holding period tool, where you can analyze exactly which cryptocurrencies can be sold at a profit or loss within the holding period.
When do I have to file the income tax return for the year 2021?
Generally, July 31, 2022 was considered the filing date, but since this is a Sunday, you actually had until the next business day, which is Monday, August 01, 2022. Now the Bundestag has decided that due to the Corona pandemic, a new deadline for filing the 2021 tax return applies. According to this, if one files the income tax return oneself, it must be filed by October 31, 2022 at the latest.
If you do not manage to do this in time, you can be represented by a tax advisor, where a deadline of August 31, 2023 applies.
Does the personal income tax rate or the capital gains tax (final withholding tax) apply to crypto?
A more detailed breakdown can be found in the table of individual classifications, in summary:
|Operation||Type of income||Tax rate|
|Crypto Margin / Futures||§ 20 EStG||25 %|
|Crypto Income||§ 22 Nr. 3 EStG||14 % – 45 %|
|Crypto Trading||§ 23 EStG||14 % – 45 %|
The trade with cryptocurrencies and the income / revenue with cryptocurrencies are subject to the personal income tax rate and count to the Annex SO of the tax return. Only the taxation of margin and futures transactions is settled at a flat rate with the capital gains tax (settlement tax) and entered in the Annex KAP.
Do I have to report tax-free profits to the tax office?
Tax-exempt profits do not have to be declared and cannot be entered in the income tax return; there is no line for this in the tax return form. Nevertheless, it makes sense to send the tax report as an attachment in order to explain to the tax office exactly why these are tax-free profits on the basis of the transaction data.
Do you have to declare small profits and income?
The decisive factor here is what exactly is meant by small. If the profits from trading or income with cryptocurrencies do not exceed the exemption limits of 600 euros and 256 euros, nothing has to be declared.
As soon as profits from margin trading and futures exceed the exemption amount of 801 euros, they must be taxed at 25%. Other capital gains, such as interest or gains from the sale of shares, must also be added.
What are the tax exemption limits and tax allowances and are they relevant for cryptocurrencies?
We have already covered the difference between tax allowance and tax-free limit. The following table provides an overview of all relevant exemption limits and the tax-free amounts.
|Operation||Exemption limit||Amount (ESt 2021)|
|Basic allowance||Allowance||9.744 €|
|Crypto Margin / Futures||Allowance||801 €|
|Crypto Income||Allowance||256 €|
|Crypto Trading||Allowance||600 €|
Do I have to report received airdrops or portfolio value on my tax return?
The receipt of an airdrop is generally tax-free and does not have to be declared in the income tax return. Nevertheless, due to completeness and for a possible later sale, it is recommended to declare the acquisition along with any further profits declared anyway. The portfolio value does not have to be declared either, as there is no wealth tax in Germany and the tax does not affect the cryptocurrencies held.
Can crypto losses and crypto gains be offset against each other?
Yes, realized gains and losses from the same calendar year can offset each other, even if the gain results from different wallets and exchanges. For example, a realized capital gain on Coinbase (1000 euros) can be offset against a realized capital loss on Binance (800 euros). If one has no other gains, the total gain would be only 200 euros, which is below the tax-free limit and would therefore be tax-free. Therefore, it is recommended to always keep track of the portfolio and realize losses in time. In order to be able to see exactly which coins can currently be sold in the portfolio at a loss, within the holding period, or also at a profit, outside the holding period, the Trading Tax Optimizer shows.
Can crypto losses from cryptocurrency trading be offset against Staking Rewards?
No, offsetting losses against profits is only allowed within the same type of income. This means, high income with cryptocurrencies according to §22 No.3 EStG (e.g. from staking) cannot be offset with losses from trading with cryptocurrencies according to §23 EStG.
Is it possible to offset profits from margin trading with losses from cryptocurrency trading?
Unfortunately, neither, the profits from margin trading count as capital income and are therefore not to be offset against losses from trading in cryptocurrencies. This means, if you have high losses from margin trading according to §20 EStG, these cannot be offset against profits from trading with cryptocurrencies according to §23 EStG or against other income according to §22 No. 3 EStG.
Do I also have to pay taxes if the price of the mining, lending or staking rewards I receive drops to zero?
Yes, because as already described in the above section, earnings and trading profits are not to be offset against each other. Therefore, it is recommended to exchange a portion of the rewards for a fiat currency or stablecoin directly upon inflow. However, after the turmoil with UST and Terra Luna, we learned that algorithmic stablecoins can also suffer a total loss. There are other stablecoins, such as DAI or USDC, that are currently considered relatively “safe”. In any case, one should always remember to have enough “safe” reserves for tax.
In which annex of the tax return must the profits or income be entered?
Profits from cryptocurrency trading according to §23 EStG as well as income from cryptocurrencies according to §22 No.3 EStG belong to other income and are entered in the annex SO.
Profits from margin trading count as capital income according to §20 EStG and are entered in the annex KAP.
Can I carry losses with crypto into the next year?
Yes, losses are automatically carried forward by the tax office to the next year and offset against future profits. For this purpose, the tax office sends a letter for the separate determination of profits and losses. In principle, realized capital losses can be offset against each other in the same calendar year, although it should be noted that this only applies to gains and losses from the same type of income. Income with cryptocurrencies according to §22 No.3 EStG (e.g. from staking) cannot be offset against losses from trading with cryptocurrencies according to §23 EStG.
Can losses with crypto be carried back to the previous year?
Yes, on application, losses can be carried back to the previous year and offset against profits already taxed in the previous year. In this case, you will receive a tax refund from the tax office for the tax already paid from the previous year.
How to apply for a loss carryback at the tax office?
You can apply for loss carryback directly when submitting your tax return. If you wish, you can carry back only part of the losses and carry the rest forward to the next year. If the loss carried forward is not used up in the next year, it will continue to be carried forward until it can be offset against profits.
Is the loss carryback limited in time or amount?
This is governed by Section 10d of the German Income Tax Act (EStG), whereby it should be noted that a loss carryback is only possible for the previous year, is limited to two million and must be applied for separately, whereby a carryback of up to four million euros is possible in the case of joint assessment.
What supporting documents must be submitted with the tax return?
In Germany, income tax returns may be submitted without supporting documents since 2017. The document submission requirement has been changed to a document retention requirement, i.e. initially the tax return can be submitted without documents, but documents must be submitted subsequently if requested by the tax office. It is recommended to send the tax report directly as an attachment, as experience has shown that the tax office will otherwise request further documents anyway.
How long must crypto records be kept?
In contrast to entrepreneurs, private individuals are not subject to a retention period of six or ten years. Nevertheless, the documents should be kept even after receipt of the income tax assessment notice and especially in the case of provisional tax assessments. In this way, you can always respond quickly to queries from the tax office.
Income tax assessment and the tax office
How long does it take to process an income tax return?
Depending on the federal state, processing takes about eight weeks, but you can also receive your tax assessment more quickly. However, experience has shown that the processing time for tax returns with cryptocurrencies can take a bit longer. If the tax office takes more than 6 months, you can file an appeal for failure to act to demand quick processing.
However, it is recommended to call the responsible tax office beforehand and ask the person in charge, often you will already receive important information or a time horizon until when the tax return can be processed.
What does the reservation of review according to §164 AO mean for the tax assessment with cryptocurrencies?
Tax assessments with declared cryptocurrencies usually contain the reservation of review and are therefore not yet final. Whether or not the tax assessment is issued subject to a conditional review is usually at the discretion of the competent tax office. The proviso is usually issued on a provisional basis if the tax facts are too complex and the current tax law view is not always clear. In concrete terms, this means that both the taxpayer and the tax office can still subsequently change the assessment. If necessary, you can apply to the tax office to have the reservation of review lifted.
Is it possible to pay taxes in cryptocurrencies?
No, currently the payment of taxes in Germany is only possible with fiat currencies. In Switzerland, the tax debt can already be paid with Bitcoin and Ether in the canton of Zug. It remains to be seen if and when this will also be offered in Germany.
The tax office has set advance payments, what to do?
If advance payments have been set based on crypto profits, one should contact the tax office and request a reduction of the advance payments. This is because the prepayments are based on profits of a very volatile crypto market and one cannot assume that the same profits will be made in the next tax year and that one will be financially able to make the prepayments.
When do you have to pay the crypto tax back payment?
Generally, you have one month from receipt of the tax assessment notice to pay the additional payment. If you do not do this in time, you have to expect late payment penalties. The late payment surcharge according to §240 AO is 1% of the rounded down additional payment per month, rounded to the nearest 50 Euro divisible amount. Means I received a back payment of 6,780 euros, one must pay per month 1% of the rounded off amount (6,750 euros). This would be in this case a monthly late payment surcharge of 67.50 euros.
Crypto tax tips and tricks
How can I legally minimize my crypto profits?
- There are many strategies crypto investors can employ to minimize their taxes and maximize their after-tax profits:
- HODLe your cryptos over a year so that taxable short-term gains become long-term tax-free gains.
- Don’t HODLe your cryptos over a year if taxable short-term losses become long-term tax-free losses.
- Sell your crypto assets within the holding period if you face large losses.
- Be aware that the inflow of earned cryptocurrencies is taxable and assessed at the time of inflow.
- Make sure you have enough fiat money to pay your taxes even if the price drops.
- Don’t forget to include your advertising costs related to cryptos, such as the cost of accruing (the cost of determining the taxable base).
- Be aware that as the complexity of your transactions potentially increases, so does the complexity of your taxes.
- Always try to track your transactions in a timely manner and keep track of your portfolio in order to make quick and strategic smart decisions.
Are there countries like Dubai that don’t tax my cryptos?
Yes, there are some countries where cryptocurrencies are not taxable. However, one should be aware that one is not necessarily fully taxable in the new country. Especially in the case of cryptocurrencies, there is a possibility that due to exit taxation, even after moving, the sold cryptocurrencies are still taxable in Germany. If you are planning a move, it is advisable to consult a tax advisor specializing in international tax law.