Tax trap cryptocurrencies
In my first real blog entry, I would like to talk about a topic that is very little talked about on the internet.
To my person, I am Roman Reher, 28 years old and from Germany. I am an IT project manager and lead parts of our IT team.
About a month ago, I started making videos for newcomers to the crypto scene on YouTube, my goal is to share my knowledge with people who can benefit from it.
But let's get to the actual topic.
To speak of a trap, we must first assume that the taxes in your country are handled exactly as in Germany.
And as follows:
Any profit from the trading of cryptocurrencies must be taxed if they are sold profitably in less than a year.
In Germany with your income tax rate, in my case almost 40%.
The problem is that this also applies if a cryptocurrency is exchanged with another cryptocurrency.
So let's go through an example (with sample values):
1. I buy for 1000 $ exactly 1 BTC, say 1 BTC is worth 1000 $.
2. I exchange this directly in 100 ripple (100 ripple = 1000 $)
3. The entire crypto market increases by 100% within one month and the 1 BTC is now worth 2000 $ and the 100 ripple are also 2000 $ worth.
4. I now sell after e.g. this month my ripple for BTC, so I get back exactly 1 BTC, but at a value of now 2000 $.
And this is where the trap lies.
For the tax office I now have made a profit of 1000$ and I have to tax it.
Now imagine, the BTC would have risen to 4000 $ and my ripple to 2000 € equivalent. At this moment I change the ripple back to BTC, so I only get 0.5 BTC, but I made a profit in "$" and pay taxes on the value of Ripple (2000 $).
So for anyone who lives under this tax law and does not want to behave illegally, I only can advise against daytrading.
Especially in a rising crypto market, you only make losses when trading through taxes. You could also say, you are trading until you are poor.
What I recommend to you instead:
Look at good projects in which you want to invest for at least 1 year, since the profits are tax-free thereafter.
Be careful not to believe any nonsense, research the team behind the projects and get well informed.
Keep BTC in your wallet for ... a very long time and keep your Ethereum account balance at 0.
You only buy Ethereum, to invest it at the same time when you want to spend it on an Exchange in a project you have chosen. So you have no value increase, no FIFO problem (first in first out) and you can invest without hesitation.
I hope I could warn you about this trap soon enough.
And to all those who think that the tax office and the government never gets behind the taxes payable in the crypto market:
You live dangerously and you should be aware that every legal Exchange knows your real name as well as the associated Wallet ... also where you made of these Wallet transactions.
A clever man once said you can do anything, but pay your taxes!
Greetings from Germany
The Blocktrainer