Are you a student investing in cryptos, but have never looked into the tax aspects of crypto trading? But then it’s about time! Especially as a student, you should pay special attention to documenting your crypto trades in a clean and traceable way, so that you don’t unknowingly build up a large tax burden, fall into the tax trap and maybe even risk your funding. We have summarized a few rules and terms that you should pay special attention to in this article.
Keep an eye on your tax liability
When trading cryptocurrencies in Germany and Austria, taxes are not only incurred when Bitcoin is converted into Euro, but also when Coins or Tokens are exchanged with each other or when you receive rewards from Staking or Lending, for example. Thus, a tax liability can build up during the year without you noticing it. If the taxes are then due and you have no cash reserves, this puts you in an unpleasant situation.
Here, a daily updated overview of your portfolio as well as the holding period of your individual coins helps to get a better picture of your possible tax liability already during the current tax year.
The deadline for filing the 2020 tax return in Austria is June 30, 2021. In Germany, the deadline this year is August 2, 2021 (normally July 30). Thus, in principle, you still have enough time to complete your 2020 tax return, yet the tax year ends on December 31 and the income earned can no longer be changed in Austria. You can carry your losses back to the immediately preceding calendar year in Germany.
Therefore, it is already important to deal with the tax implications in order to realize losses at an early stage in order to reduce the tax burden and/or already ensure liquidity.
Know the tax rules and use exemption limits
For private individuals, the taxation of virtual currencies strongly depends on whether a profit was realized and how long the cryptoassets were owned. In Germany as well as in Austria, holding cryptos for more than one year is no longer considered trading and the resulting profit is tax-free for private individuals.
However, the same applies to realized losses, which can only be offset in the same year. If you exchange your virtual currencies within one year for a product, a service, in Euro or in another cryptocurrency, you have to offset the acquisition costs against the sales price.
Tax exemption limit Austria:
In addition, there is an tax exemption limit of 440€ for speculative transactions. If your annual profit from speculative transactions (trading during the year) does not exceed this limit, they are tax-free. However, if the amount of 440€ is exceeded, the total amount is taxable. Depending on the amount of the total annual income, the progressive tax rate for profits from speculative transactions for private persons can be up to 55%.
Example Austria (1): Income: 8000€ + exemption limit 439€
Jan studies in Vienna and serves as a waiter in addition to his studies. He earns 8000€ per year doing so and thus stays below 11,000€ with his total annual taxable income. He has invested a bit in different cryptos and knows the tax exemption limit of 440€. Annually, he withdraws exactly the amount from his portfolio, so that the annual profit is 439€ and remains tax-free on this as well. His total income (also called tax base) in this example is thus 8,439€ annually and thus remains entirely tax-free. Nevertheless, it is advisable to keep an accurate portfolio documentation, because the tax office may ask for a written documentation of the transactions some time later.
Example Austria (2): Income: 10000€ + Profit 3000€
Jan studies in Vienna and serves as a waiter in addition to his studies. He earns 10000€ per year doing this, keeping his total annual income subject to income tax below 11,000 euros. He has invested a bit in various cryptos and wants to sell parts of his portfolio to cover additional expenses. He withdraws 3000€ in profits from his portfolio and thus exceeds the tax exemption limit of 440€. Now his total taxable income is 13,000€, since the amounts add up. Jan has to declare his earnings as a waiter as well as the profit from his trades in his tax return and pay the correct taxes.
Tax exemption limit Germany:
If a resale of one’s own cryptocurrency is made within the one-year holding period, an exemption limit of 600 euros p.a. applies – however, the exemption limit applies to all private sales transactions in the year in question, i.e. it does not only refer to crypto transactions of the taxpayer. Should the exemption limit be exceeded, the ordinary individual income tax rate between 14% and 45% applies.
Example Germany (1): Income: 7000€ + exemption limit 599€
Julian studies in Berlin and serves as a waiter in addition to his studies. He earns 7000€ per year and thus stays below 8,354€ with his total annual taxable income. He has invested a bit in different cryptos and knows the tax exemption limit of 600€. Annually, he withdraws exactly the amount from his portfolio, so that the annual profit is 599€ and remains tax-free on this as well. His total income (also called tax base) in this example is thus 7,599€ annually and thus remains entirely tax-free. Nevertheless, it is advisable to keep an accurate portfolio documentation, since the tax office may also require written documentation of the transactions some time later.
Example Germany (2): Income: 7000€ + Profit 2000€
Julian studies in Berlin and serves as a waiter in addition to his studies. He earns 7000€ per year doing this, keeping his total annual income subject to income tax below 8,354 euros. He has invested a bit in various cryptos and wants to sell parts of his portfolio to cover additional expenses. He takes out 2000€ in profits from his portfolio and thus exceeds the exemption limit of 600€. Now his total taxable income is 9,000€, since the amounts add up. Jan has to declare his earnings as a waiter as well as the profit from his trades in his tax return and pay the correct taxes.
Important distinction: tax exemption limit & tax exemption amount
As often the case, tax law is not designed to be understandable. A special distinction concerns the tax exemption amount and the tax exemption limit.
An allowance describes a sum up to which no taxes are due. If the tax exemption amount is exceeded, only the part of the profits exceeding the tax exemption amount is taxed.
The situation is different with the exemption limit. If this is exceeded, the entire amount becomes taxable.
Actively include tax calculation in your strategy
Profits and losses in trading are taxable only after they have been realized. This means that you can make perfect use of your taxes through a precise overview and optimize them until the respective deadline and, above all, use your exemption limits. If you intend to exceed them, plan the possible tax costs into your strategy. This way, you’ll never be in a position where the tax authorities claim your taxes and you’re forced to liquidate your active investments to pay taxes. For more good tips on planning your personal cash-out strategy, click here.
As soon as you invest in cryptos, you should factor the tax component into your planning. It is important to know the tax limits and keep an accurate overview of your portfolio to avoid building up tax liabilities. Depending on your strategy, you should use the 1-year holding period for at least some tranches. If you are more of a trader than a hodler, you should also look at realizing losses. Realizing losses during the year not only helps you to free your portfolio from any old burdens, but (used correctly) can also reduce your tax burden.
Blockpit supports you with portfolio tracking
As a reliable tax partner, Blockpit not only helps you track your portfolio, but also calculate your taxable crypto profits. Our users also get the option to automatically import crypto investments made on different exchanges and wallets and thus always keep a good overall view. Of course, you can also add and manage your own data via CSV. Since we know from our own experience how difficult the financial situation as a student can be, we have teamed up with iamstudent.at / iamstudent.de and set up a 50% discount on our Advanced license for students. If you register as a student through our partner iamstudent.at , the amount will be deducted directly from your invoice.
Hint for budget savers:
The cost of a Blockpit license can be deducted directly from taxes as advertising costs ?
Disclaimer: The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and did not claim either correctness or accuracy. For detailed information on crypto regulations, we recommend contacting a certified legal advisor in the respective country. If any questions or concern, feel free to contact us on our social media channels.