Calculation of profits from crypto transactions
Understanding how to calculate profits from crypto transactions is important for your tax return. In this article, we'll take a look at how you can assess the income and costs of a crypto transaction to determine your profit or loss.
If you own and trade cryptocurrencies, you also need to calculate your profits and losses correctly in order to pay your taxes correctly. This means that you should understand how to assess your income and costs from transactions to determine your actual profit or loss. An accurate calculation is important to properly fulfill your tax obligations.
Calculating the income from a crypto transaction depends on the type of transaction. If you sell your cryptocurrency for euros, calculating the revenue is quite simple. In this case, the revenue is equal to the euro value received. This means, for example, if you sell bitcoins (or parts of a bitcoin, so-called satoshi) for 300 euros, the revenue is 300 euros.
However, it becomes more complex when you exchange your cryptocurrency for another cryptocurrency. In this case, there is no direct euro value that you can use to determine your earnings. Instead, you should use the market value of the cryptocurrency received in euros on the day of the transaction. This market value reflects the value of the cryptocurrency received in euros. However, the market value may not always be readily available.
In such cases, the market value of the cryptocurrency sold in euros can be used. This ensures that you at least take the value of the cryptocurrency sent into account when calculating your earnings. To determine the current market value of your cryptocurrencies, there are various platforms and tools available, such as Cryptonow Trade®, which can show you the prices.
If you use cryptocurrencies to purchase goods or services, the revenue should be the agreed euro amount for the goods or services. If no specific amount has been agreed, you should use the value of the cryptocurrency at the time of the transaction to determine the revenue.
To determine the profit or loss of a crypto transaction, you must also take into account the costs of the transaction. In Germany, the first-in-first-out (FIFO) method is used to determine the cost basis of your cryptocurrency. This method states that the cryptocurrency bought first should also be the cryptocurrency sold first. In other words, the order in which you sell your cryptocurrency is crucial.
Suppose you first bought a Bitcoin for 1,000 euros and later bought another Bitcoin for 10,000 euros. If you now sell 1 Bitcoin for 20,000 euros, the first Bitcoin purchased is considered the first Bitcoin sold when applying the FIFO method. In this case, your profit is 19,000 euros (selling price - cost basis of the first Bitcoin purchased).
When calculating the costs of a transaction, you can also deduct all fees incurred, such as trading fees or transaction fees, as costs. This reduces the profit and thus reduces the tax burden.
The correct calculation of profits from crypto transactions is crucial in order to meet your tax obligations. By evaluating the income and costs of a transaction, you can determine the profit or loss made. Tax calculators such as Divly can help simplify the calculations. Make sure you follow the applicable tax guidelines and consult a tax advisor if in doubt. With this knowledge, you can better track your crypto transactions and properly manage your tax affairs in relation to cryptocurrencies.
Blockpit: https://www.blockpit.io/de-at/steuer-guides/krypto-fifo-lifo-verbrauchsfolgeverfahren
This article does not constitute investment advice or a solicitation to buy or sell digital assets or other financial instruments or to enter into any other financial transaction. The main purpose of this article is to provide general information. No representations or warranties, express or implied, are made regarding the fairness, accuracy, completeness, or correctness of this article or the opinions contained therein. Therefore, it is advisable not to rely on the fairness, accuracy, completeness, or correctness of this article or the opinions contained herein. Some statements in this article may contain forward-looking expectations based on our current views and assumptions. These statements are subject to uncertainties and may lead to actual results, performance, or events differing from the statements made in this article.
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