In the exciting world of cryptocurrencies and digital assets, there are not only opportunities for high returns, but also tax pitfalls that investors should be aware of. Anyone investing in this area should keep an eye on the potential tax implications to avoid unpleasant surprises when it comes to their tax bill.
Tax traps when investing in crypto
The good news is that capital gains from the sale of movable assets are normally tax-free. However, this can change if your investment activities are so intensive that you are considered a professional securities trader. In this case, your profits will be subject to income tax and social security contributions.
Checklist for avoiding tax traps
You can use a checklist to find out whether you could be considered a professional securities trader. This is based on Circular No. 36 of the Federal Tax Administration and provides an initial assessment. Here is an overview of the criteria:
- Holding period: the securities sold should be held for at least six months.
- Transaction volume: The transaction volume (sum of all purchase prices and sales proceeds) may not exceed five times the securities and assets held at the beginning of the tax period in the calendar year.
- Necessity of capital gains: Capital gains should not be necessary to replace missing or lost income for living expenses. This is the case if the realized capital gains amount to less than 50% of the net income in the tax period.
- Financing: The investments should not be leveraged, or the taxable investment income from the securities should be greater than the pro rata debt interest.
- Derivative transactions: The purchase and sale of derivatives (in particular options) should be limited to the hedging of own securities positions.
Individual review in case of doubt
Despite this checklist, the high volatility and complexity of crypto assets may mean that cumulative fulfillment of the five criteria mentioned is not possible. In such cases, an individual examination of the specific case is required, whereby criteria 2 and 4 are treated as a priority.
Tax consequences
If you realize capital gains as a professional securities trader, these are subject to income tax and social security contributions. At the same time, capital losses can be deducted and carried forward over seven years, which can be advantageous in times of market uncertainty.
