How to report your Crypto/Virtual currencies?
Buying, selling and holding crypto currencies is a relatively recent development. The virtual currency cannot be considered as a monetary currency and therefore the taxation that comes with it is different.
Thus, it is often unclear how crypto currency is taxed. What virtual currency is taxable? How to declare crypto currency? How is it actually taxed?
What income should be reported?
The activities of transfer and mining of a virtual currency are subject to potential tax when income is generated.
If a virtual currency is exchanged for another virtual currency or for euros or another monetary currency, it is considered as a sale for value of the virtual currency followed by the acquisition for value of the other currency. The gain from the sale would therefore be subject to potential taxation.
Please note that simply holding virtual currencies without selling them is not a source of income and is not subject to taxation.
In which category to report your crypto-currency income?
There are two ways to declare virtual currency for tax purposes: income from virtual currencies can be considered as commercial profit or as miscellaneous net income. In both cases, the income will be taxed at the progressive scale, like wages for example.
The income from virtual currencies is to be considered as a commercial profit if it is an "independent activity for profit carried out on a permanent basis and constituting a participation in the general economic life, when the said activity does not constitute an agricultural or forestry exploitation or the exercise of a liberal profession".
Hence, these conditions can be met by persons who, for example, own premises to carry out their activity, who have a loan to finance this activity or who regularly keep an inventory of their virtual currencies.
These are generally individuals who make virtual currency trading their main activity and/or their main source of income.
It should also be noted that operating expenses, such as electricity costs in connection with the mining activity for example, can only be deducted if they are caused solely by the company and not for private purposes.
Miscellaneous net income
Income from crypto currencies is considered as miscellaneous net income when such income cannot be considered as a commercial profit.
To be considered as a miscellaneous net income, the income from virtual currencies must be a speculative profit, i.e. the period between the purchase and sale of these virtual currencies is less than 6 months.
This speculative profit will be taxed on a progressive scale.
If the crypto currency was held for more than 6 months before resale, the income from this sale is not subject to taxation. Similarly, if the total annual profit (taking into account gains and losses from speculation) does not exceed 500 euros, then this profit is not subject to taxation.
Steve is employed and in his spare time he sold crypto currencies in 2021.
03.03.2021: Purchase for 3 000 euros
04.05.2021: Resale for 2 500 euros
08.05.2021: Purchase for 1 000 euros
07.09.2021: Resale for 3 000 euros
Losses: 500 euros
Gains: 2 000 euros
Result: 1 500 euros
Steve is employed, and crypto currency income is not his main activity.
Steve has kept these crypto currencies for less than 6 months.
The capital gain is more than 500 euros and is therefore subject to taxation.
Steve therefore reports 1,500 euros in the miscellaneous net income category.
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