In daily practice, it is seen that many investors in crypto and non-fungible tokens often make investment decisions without considering their tax consequences. In the worst case, this can result in tax claims that can even lead to personal bankruptcy. Then the luck of profit quickly turns into the misfortune of paying taxes.
The TOP 3 biggest tax mistakes when investing in cryptocurrencies and non-fungible tokens are presented below.
TOP 3 – Mistake #1: Selling within the one-year holding period
One would think that word has spread that when selling non-fungible cryptocurrencies and tokens, the sale within the one-year holding period pursuant to Section 23 (1) sentence 1 n ° 2 EStG entails a tax liability for profits. Nevertheless, it is often found in practice that profits are short before the expiry of the one-year period. Conversely, losses from private sale transactions with non-fungible cryptocurrencies and tokens are expected to be realized within a year.
Conclusion: Before the sale, the tax holding period should be carefully checked.
ITEM 3 – Mistake #2: investing all capital gains in new projects
It should also be noted that investors often invest taxable profits from cryptocurrencies and non-fungible tokens directly into new crypto projects. It is often forgotten that high tax claims can quickly accumulate here. It is better to “park” part of the profits in fiat or stablecoin and thus ensure the subsequent settlement of the tax claim.
Conclusion: Taxable profits should be placed in fiat or at least stablecoin as a percentage of the tax rate.
POINT 3 – Mistake #3: total investment of taxable income in new projects
One of the biggest and most serious mistakes is that crypto investors directly invest incoming cryptocurrencies or simply “leave” them.
Why is this a tax problem?
This is due to the fact that entries, for example in the form of wagering rewards, are generally taxable at the entry value according to § 22 No. 3 EStG. This regularly results in direct tax claims.
It becomes explosive when the value of incoming cryptocurrencies subsequently drops. From a tax point of view, this is not relevant for a tax obligation according to § 22 no. 3 EStG, because the input value is used. In the worst case, this may mean that even a complete collapse of the cryptocurrency does not change anything after the influx of the tax claim that has arisen in this regard.
Conclusion: Tax-relevant cryptocurrency “inflows” should be exchanged for stablecoins or fiat as a percentage of the tax rate in a timely manner at the time of ingress.
Especially with larger investments in cryptocurrencies and non-fungible tokens, tax advice from specialist advisers can literally pay off.
by attorney Martin Figatowski, LL.M. (tax)
For questions about cryptocurrency taxation and for creating your crypto | I am at your disposal for the NFT tax declaration.
I am a lawyer at GTK GINSTER • THEIS • KLEIN & PARTNER mbB auditors • tax advisers • lawyers have previously worked for many years in the senior service of the financial administration of NRW, in particular as head of service in the office of tax/criminal investigations and fines . You can find our law firm’s website at www.gtkp.de and my personal website at www.martin-figatowski.de .