Cryptocurrency

Lesson 4

14 min

Do I have to pay taxes when I buy or sell Bitcoin?

With the rise of digital currencies like Bitcoin, we've taken a revolutionary step towards financial autonomy and innovation. But while the decentralised nature of cryptocurrencies brings many freedoms, it also involves an inevitable encounter with a very traditional institution – the tax office. The taxation of cryptocurrencies can seem confusing at first, especially considering how new this field is for many investors and even some tax authorities.

This article guides you through the maze of crypto taxes. We explain how Bitcoin and other crypto gains are taxed, when these amounts are tax-free and which tools cryptocurrency investors can use.

Do I actually have to pay tax when buying or selling Bitcoin? In short: Yes, you do:

in most countries, both sales and trades are taxed
the legal framework varies from country to country

depending on the country, losses and gains can be offset to reduce the tax burden

Basics: The most important terms around crypto taxes

Understanding tax obligations for crypto transactions is essential for any investor dealing in digital currencies like Bitcoin, Ethereum and other coins and tokens. To estimate the crypto taxes on your gains, you first need to understand the basic terms of crypto trading.

Purchase price

The purchase price in crypto trading refers to the amount you originally paid to acquire a cryptocurrency. This includes all related costs such as transaction or trading fees. This price is the basis for calculating capital gains or losses and is crucial for reporting your crypto income in the tax return.

Sale price

The sale price in crypto trading refers to the amount you receive when selling a cryptocurrency. This price is key to calculating capital gains or losses, as it's used in combination with the purchase price to determine the taxable gain or loss.

Capital gains

Capital gains on crypto trades arise, as with any assets, when a cryptocurrency like Bitcoin is sold for a higher price than it was purchased. The capital gain (disposal gain) is the difference between the sale price (disposal price) and the purchase price of the digital asset. These gains from disposals are taxable in many countries, including Germany, and must be declared in your tax return.

For example, if you buy one Bitcoin for €35,000 and later sell it for €40,000, your capital gain is €5,000. This gain is potentially taxable, depending on the tax laws in your country of residence.

Capital losses

If the difference between the purchase and sale price is negative, you've incurred a capital loss by trading assets. This means you sold a cryptocurrency for less than you paid to acquire it. Just like gains, losses from disposals must also be reported in tax returns in many countries, as they can affect your overall tax balance.

Say you bought one Bitcoin for €40,000 but had to sell it later for €35,000. In this case, you've suffered a capital loss of €5,000. In many countries, including Germany, you can use this loss to reduce your crypto tax. Capital losses can often be offset against capital gains from the same tax year, which reduces the tax owed on crypto profits.

Speculation period

The speculation period in crypto trading is the length of time you must hold cryptocurrencies for gains on their sale to be tax-free. According to the German Federal Ministry of Finance, since 2022 Germany has a one-year speculation period. After this, crypto gains are tax-free. If you hold coins and tokens beyond this period before selling, these earnings don't need to be declared and remain tax-free. This crypto rule can vary from country to country. Understanding and considering the speculation period is crucial for tax planning in crypto trading.

Holding period

The holding period refers to the time an investor holds a cryptocurrency before selling. This period is particularly relevant for taxing crypto gains, as taxes are only due upon payout or sale. As of 2022, the Federal Ministry of Finance states that your disposal gains are tax-free if you’ve held Bitcoins for more than a year before selling.

Tax exemption threshold

The tax exemption threshold in crypto trading is the amount up to which gains from cryptocurrency trades like Bitcoin remain tax-free. If the total gains don’t exceed this threshold, no tax is due. The Federal Ministry of Finance states that since 2022 in Germany, the exemption threshold for all private sales is €599 per year. If total gains from all private disposals exceed this amount, the entire sum becomes taxable. Private disposals also include sales via eBay or other marketplaces.

The FIFO principle: First In, First Out

Under the FIFO principle (“First In, First Out”) for determining crypto taxes, the units of a cryptocurrency purchased first are considered sold first. This method is used to calculate taxable gains or losses when the same cryptocurrency is bought at different times and prices. The gain or loss is calculated as the difference between the sale price and the purchase price of the earliest acquired units. FIFO helps create a clear basis for calculating taxes on crypto trading and is accepted by many tax authorities.

The LIFO principle: Last In, First Out

The LIFO principle, short for “Last In, First Out”, serves the same purpose as FIFO in calculating crypto taxes. With this method, the most recently purchased units of a cryptocurrency are considered sold first. Like FIFO, LIFO is used to determine taxable gains or losses from crypto sales involving assets bought at various times and prices. The sale price is compared with the purchase price of the most recently acquired units to calculate the taxable gain or loss. LIFO offers an alternative basis to FIFO and may offer tax advantages under certain conditions.

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Calculation tools for reporting your crypto gains

In the world of crypto trading, accuracy in tax reporting is essential. To correctly calculate your precise gains and losses and declare them in your tax return, various tools are available. These tools make it easy to track your buys and sells and calculate the corresponding tax-relevant gains and losses.

Free subscriptions

Are you new to the crypto scene, making only a few trades a year, or just not keen to spend money on expensive tools for calculating your crypto gains, losses and taxes? Many tools offer a limited free version alongside their paid plans.

These free options are available from the following crypto tax tools:

CoinTracking: The free version allows you to track up to 200 transactions, import CSV files up to 5 MB from your trading platform, and generate a tax report limited to 1,000 entries.
Blockpit: Blockpit's free version gives a user-friendly overview of your crypto transactions and includes features like automatic detection and categorisation of transactions and accurate fee tracking. However, tax report generation isn’t available in the free version.
Koinly: The free Koinly plan supports up to 10,000 transactions, portfolio tracking, capital gain forecasts and API-based data import. It does not, however, allow you to generate a tax report.

Paid subscriptions

If you’re more deeply involved in crypto or handle a higher volume of transactions, various paid subscription models offer a wide range of features needed to calculate your personal tax liability.

Here’s what the paid versions of these providers offer:

CoinTracking: The Pro subscription supports up to 3,500 transactions, while the Unlimited plan has no transaction limit. It allows large CSV exports (20 to 200 MB) and API portfolio access. You can also generate tax reports with unlimited entries.
Blockpit: In addition to all features from the free version, the paid version lets you generate a detailed tax report with your earnings and capital gains broken down for submission to the relevant tax authorities.
Koinly: Koinly’s paid options include tax report generation, custom file import, detailed cost analysis, and the ability to export your tax report into extended tax software.

Country-specific differences in cryptocurrency taxation

Crypto taxes vary significantly by country. These differences include how gains are classified, the applicable tax rates, speculation periods and annual tax-free thresholds.

Because of these regional distinctions, it’s important to familiarise yourself with the specific tax rules in your country. To handle your crypto taxes safely, it’s strongly recommended to consult a tax expert.

Crypto taxes in Germany

According to the German Federal Ministry of Finance’s 2022 guidance on taxing virtual currencies, crypto gains in Germany are generally taxable. Taxes on gains from trading Bitcoin and other cryptocurrencies are based on your income tax rate. For financial products like crypto-based certificates, a flat capital gains tax of 25% applies.

There’s also a €600 exemption threshold. Only gains above this amount are taxable. If you sell coins and tokens like Bitcoin at a lower price than you paid, the capital loss can be offset against gains. Germany also has a one-year speculation period. If you hold your crypto for more than a year before selling, the gain is tax-free.

Taxation of crypto gains in Austria

Since the 2022 tax reform from Austria’s Federal Ministry of Finance, a flat tax rate of 27.5% applies to almost all crypto transactions. Swapping one cryptocurrency for another is tax-free. Tax is only due when converting crypto to fiat. However, the original purchase costs are carried over when swapping cryptocurrencies. This means you may still pay tax on gains from the originally acquired crypto when you later sell.

Crypto gains are no longer considered speculative income, so the former €440 exemption is no longer valid. Since 2024, if you trade with a domestic broker or exchange and are taxable in Austria, the capital gains tax is automatically deducted.

Crypto tax rules in Switzerland

In its 2022 guidance paper, the Swiss Federal Tax Administration outlined current regulations. For private individuals, crypto gains are generally not taxable as they're considered private assets. However, you must include them in your wealth tax return.
Specific treatment varies by canton. Losses from crypto trading usually can’t be used to offset your tax burden. Due to the distinctions between private and commercial trading and the cantonal differences, it’s advisable to consult a local tax adviser. They can assess your situation and explain the rules in your canton of residence.

Different factors in calculating crypto taxes

Taxing cryptocurrencies involves several aspects, including capital gains, capital losses, holding periods and speculation periods. Additionally, gains from crypto staking or mining may be treated differently.

Efficiently offsetting capital gains and losses

To efficiently offset gains and losses in crypto trading and save taxes, you should keep detailed records of all transactions. A user-friendly broker like Bitpanda offers comprehensive export functions so you can clearly document and view your trades.
To calculate your tax burden accurately, the FIFO method (First In, First Out) can be used to determine which coins were sold first. It’s also wise to understand the relevant holding periods. This helps prove which gains are tax-free due to exceeding the speculation period and which are within the exemption threshold after subtracting losses. Alternatively, a smart crypto tax tool can help with this.

Taxation of staking and mining gains

As with trading gains, the taxation of staking and mining rewards also varies by country. In most cases, they’re considered additional income and are taxable. Keep precise records of all staking and mining income to simplify your tax return.
In some cases, mining expenses may be tax-deductible. Careful planning and guidance from a tax expert can help optimise your tax burden and avoid unpleasant surprises.

Consequences of tax evasion in cryptocurrencies

Evading crypto taxes can lead to serious consequences. In Germany, depending on the severity of the offence, you could face fines or even imprisonment. Penalties depend on the amount of tax evaded, your criminal history and other factors. Generally, tax offices are more interested in recovering unpaid taxes and applying late penalties than issuing jail sentences.
Late payment or undeclared crypto taxes may incur surcharges. Proper documentation of all transactions is key to a compliant tax return.
Professional support from a crypto-savvy tax adviser can help you minimise legal risk and optimise your tax situation.

If you're taxable in Austria and trade with Bitpanda, we’ve automatically deducted your tax since 2024. This means you don’t have to worry about taxation when buying or selling crypto. You'll also receive a detailed tax report from us the following year.

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More information on crypto taxes and more

Interested in the topic of crypto taxes and want to learn more? Depending on your country and its tax regulations, various platforms offer detailed insights into how cryptocurrencies are taxed. The website of the Ministry of Finance Baden-Württemberg and the resource sections of tax tools like taxfix or Blockpit provide valuable information on different aspects of crypto taxation.

Additional literature focused on crypto taxation can also offer deeper insights. If you need help with tax planning or want professional support, we recommend consulting a tax specialist with experience in cryptocurrencies.

Conclusion: Tips for taxing your crypto gains with Bitcoin and more

The easiest way to handle crypto tax is to trade using a user-friendly broker like Bitpanda. Your transactions are automatically tracked, and your buys and sells are documented for you.

If you use a broker or exchange without such tracking, you'll need to document all transactions yourself.

To declare and submit your crypto taxes to the tax office, there are various tools at your disposal. With crypto tax tools, you can input your trading history and have your tax calculated automatically. Depending on the plan and provider, you can import data via API or upload a file with your trades. The app takes care of the rest and can even generate a detailed tax report.

If you want to be completely sure and prefer not to offset your gains and losses manually, we recommend seeking advice from a crypto tax specialist. They'll provide expert support and reliably calculate your tax liability.

Frequently asked questions about crypto taxes

We answer the most frequently asked questions about crypto taxes to give you a comprehensive overview.

How are crypto gains taxed?

Crypto taxes generally become due when you cash out or sell. These trading profits must be declared in your tax return. Depending on the country and applicable tax law, you may offset losses against gains and use tax-free allowances. Under certain conditions (such as after a one-year speculation period in Germany), gains may be tax-free.

What are tax-relevant crypto gains?

Crypto gains are generally always tax-relevant. However, in Germany, if they fall within the €600 exemption threshold or if the cryptocurrency was held for more than one year before being sold, they're tax-free.

Can crypto losses be deducted for tax purposes?

In many countries, crypto losses can be claimed to reduce your tax burden. Losses are then offset against gains, lowering your overall tax liability.
The exact regulations vary by country, so it's essential to check your local tax laws or consult a tax adviser to ensure you're making full use of available tax benefits.

How much tax do I have to pay on crypto gains?

If your crypto gains are taxable, your personal income tax rate applies in Germany (Federal Ministry of Finance, 2022). In Austria, a capital gains tax of 27.5% is applied to crypto trading profits (Federal Ministry of Finance, 2022), while in Switzerland, rules vary by canton (Swiss Federal Tax Administration, 2022).

What tax exemptions exist for crypto gains?

In Germany, the exemption threshold under which crypto gains, such as those from Bitcoin, are not taxed is €600 (Federal Ministry of Finance, 2022). Austria removed its previous €440 threshold with the 2022 tax reform (Federal Ministry of Finance, 2022).