Welcome to our guide on understanding and navigating your tax report. Designed with clarity in mind, this guide aims to decode the report's structure and translate it into straightforward, easy-to-understand information. In this guide, we'll show you how to interpret the data in your report.
Section 1: Settings
Users can tailor their preferences on the settings page prior to generating a report. This includes various options such as choosing a country and setting the tax report period. After the report has been generated and downloaded, users will be guided to the overview, as outlined in Section 2. The subsequent information highlights the most critical settings for this country.
We understand that proper financial management is crucial when dealing with cryptocurrencies, which is why we provide multiple accounting methods for you to choose from. Our options include First-In-First-Out (FIFO), Last-In-First-Out (LIFO), and Highest-In-First-Out (HIFO) among others.
Here is a brief overview of these methods:
First-In-First-Out (FIFO): This method assumes that the first assets you acquired are also the first ones you sold or exchanged. FIFO is a commonly recommended approach in many jurisdictions due to its simplicity and wide acceptance.
Last-In-First-Out (LIFO): In contrast to FIFO, the LIFO method assumes that the last assets you acquired are the first ones sold or exchanged. This can be beneficial in certain tax situations, particularly in a market of declining prices.
Highest-In-First-Out (HIFO): HIFO assumes that the assets acquired at the highest cost are the first ones sold. This method can help to minimize capital gains and hence, reduce your tax liabilities.
Each method has its own advantages and is suitable for different situations, therefore your choice should depend on your individual financial circumstances and the specific tax regulations in your country. FIFO is typically used in Germany.
Automatic depot separation
The "Depot Separation" is a feature that automatically recognizes deposits and withdrawals, assigning them to the respective exchanges or wallets. Typically, CoinTracking handles all exchanges and wallets collectively, calculating costs based on the chronological order of transactions. However, when Depot Separation is activated, the system treats each exchange and wallet as a separate depot, allowing for more detailed and individual tracking and evaluation of transactions.
Tax treatment of Liquidity pool/mining transactions
This feature allows you to treat the transactions "Provide liquidity" and "Return LP tokens" as disposals. This triggers the tax report to calculate the gains.
Liquidity pool/mining rewards assignment
The "LP Rewards" transactions will be assigned to "Realized cryptocurrency capital gains/losses according to Sec. 21 TCGA".
In addition to the functionalities already discussed, our platform offers numerous additional settings. For each setting, you will find an 'I' symbol; this is the infobox which gives you detailed explanations about each setting. As you navigate the platform, these infoboxes will serve as your guide.
Section 2: Overview
Our tax report classifies transactions based on their relevant tax regulations. In Germany, profits from the buying and selling of cryptocurrencies are considered taxable income. Such profits are subject to progressive income tax. However, if the cryptocurrencies are held for more than a year, they are regarded as tax-exempt. Meanwhile, all other forms of income are categorized as other income.
The detailed explanations provided in the report elucidate the tax rules of each country. By referencing these explanations, you can gain a clearer understanding.
In this section, we aim to decode the various transaction types that can appear in your tax report. Understanding these transactions is crucial for identifying their tax implications, as well as their role as potential income sources. In this explanation, the following sections are elaborated on.
1.1. Private sale income according to Art. 23 German income tax act
1.2. Capital gains according to Art. 20 German income tax act
1.3. Other income according to Art. 22 No. 3 German income tax act
2.1. Private sale income
2.2. Other income
3. Other cryptocurrency and NFT payments
Taxable Income from Cryptocurrency Trading
In the following section, we present transaction types. These include cryptocurrencies purchased at a specific time and later exchanged for another cryptocurrency, NFT, or fiat currency.
It is essential to note that the precise tax implications of such transactions can vary based on the specific tax regulations in effect at the time of the transaction. Transactions usually triggering income gain include trade, spend, fees in cryptocurrency, remove, and provide liquidity.
A purchases 1 BTC for 100 EUR on 01.07.2022. On 31.07.2022, he sold this 1 BTC for 200 EUR. As a result, a profit of 100 EUR is realized, falling under Section 1.1. Private sale income according to Art. 23 German income tax act.
Profits from Margin, Derivatives, and Futures Trading
Profits from margin trading, derivatives, and futures are classified as capital gains, as they result from the purchase and sale of assets, which is the precise definition of capital gains.
Transaction types typically regarded as capital gains from margins, derivatives, and futures include margin gain, derivatives/futures gain, margin loss, margin fee, derivatives/futures loss, and settlement fee.
On July 1, 2022, A made a margin profit of 100 EUR. The very next day, on July 2, 2022, A incurred a margin loss of 50 EUR. As a result, A realized a capital gain of 50 EUR (100 EUR profit - 50 EUR loss). This 50 EUR gain is documented under section 1.2. Capital gains according to Art. 20 German income tax act.
Cryptocurrency Income pertains to any form of earnings obtained through various crypto-related activities, which is subject to taxation when control over the crypto asset is established, and its value can be measured in real-world terms. It is crucial to note that the specifics of how cryptocurrency income is taxed can vary significantly between jurisdictions.
The following transaction types are typically considered as income: Income, Reward / Bonus, Staking, Mining, Airdrop, Masternode, Dividends income, Lending income, Interest income, Other income, LP Rewards.
On July 1, 2022, A received a mining reward of 0.5 BTC, valued at 20.000 EUR. Then, on July 2, 2022, A received an airdrop reward of 100 AVAX, worth 100 EUR. These forms of income, both from mining and airdrop rewards, are subject to the standard income tax rate and are collectively registered under section 1.3. Other income according to Art. 22 No. 3 German income tax act.
Another crucial aspect of our tax report is the non-taxable income, which typically covers transactions held for more than a year.
It is vital to understand that while these transactions are not subject to tax, they must still be listed in your tax report. This ensures complete transparency and adherence to tax regulations.
A purchased 1 APE for 100 EUR on 01.07.2021. He held the APE for over a year. On 02.07.2022, he exchanged this 1 APE for 400 EUR. Despite the realized profit of 300 EUR from this trade,, this gain is tax-exempt in Germany after the one-year holding period and is categorized under section 2.1. Private sale income non taxable.
Non-Taxable Other Income
Non-taxable income from cryptocurrencies refers to specific income categories, such as certain types of airdrops, that differ from gains under income and other income. We present this separately for clarity.
It is important to note that under the old tax regulation, gains from cryptocurrencies held for more than a year were considered tax-free. Under the new tax regulation, gains from exchanges between cryptocurrencies that are not sold for fiat currencies are considered tax-free.
The following transaction types are typically considered as non-taxable income: Airdrop non-taxable, Income non-taxable.
On October 1, 2022, A received non-taxable income in the form of 1 BTC, valued at 40.000 EUR. This non-taxable income is documented under section 2.2. Other income non taxable.
Other cryptocurrency and NFT payments
Donations, gifts, stolen/hacked/fraudulent transactions, lost assets, commercial mining, and minting are reported separately. This is because the taxation for these types of transactions often varies between countries. Therefore, to accommodate these differences, these transactions are displayed separately.
On September 1, 2022, A received a gift/tip in the form of 1 BTC, valued at 40.000 EUR. This gift is recorded under section 3.1. Incoming donations and gifts in the context of other cryptocurrency payments.
Section 3: Transaction List
The Transaction List provides a detailed record of all transactions over a specified period. It includes:
Amount: Refers to the number of units of the cryptocurrency traded.
Date Acquired: The date when the unit was purchased or acquired.
Date Sold: The date when the unit was sold.
Holding period in days: The number of days between the purchase and sale of a unit.
Long/Short: A classification based on the holding period. Transactions are either short-term (less than one year) or long-term (more than one year).
Type: The nature of the transaction (purchase, sale, exchange, etc.).
Cost Basis in EUR: The original cost or value in EUR.
Proceeds in EUR: The amount received from the sale of the unit, expressed in EUR.
Gain/Loss in EUR: The financial gain or loss from the sale, calculated as the difference between the proceeds and cost basis.