You Can't Avoid Crypto Tax - Here's 8 Ways to Pay Less in Germany
Searching for ‘kryptowährung steuern umgehen’? You’re not the only one! While you can’t bypass crypto tax altogether - there are plenty of ways you can pay less tax to the BZSt. Here’s how to minimize your crypto tax bill in Germany legally.
8 ways to minimize your crypto tax bill
Utilize tax-exempt limits
Track unrealized losses
Harvest crypto losses
Offset crypto losses
Get smart with DeFi
Use a crypto tax calculator
Your short-term capital gains and long-term capital gains are taxed differently in Germany - so paper hands beware.
Your short–term capital gains are taxed at your regular Income Tax rate - up to 45% plus the 5.5% solidarity surcharge. Short-term capital gains refer to any asset held less than a year at the point of disposal.
Meanwhile, your long-term capital gains are not subject to tax. So any crypto you’ve held for more than a year is tax free when you sell, swap, or spend it.
Take advantage of tax exempt limits
Each taxpayer has a couple of tax-free thresholds each financial year, both for capital gains and income.
If you’re staking or mining crypto - you’d be right in thinking this is taxed, but you only need to file a tax return if you earn more than €256 throughout the financial year. If you’re under this amount, you don't need to file a return to report this and this figure would be tax free. However, if you earn over this exemption limit, you need to file a tax return and the entire sum is taxable.
As well as this, taxpayers do not need to file a tax return to report less than €600 in short-term capital gains each financial year. So if you earn less than €600 from selling, swapping, or spending crypto you’ve held less than a year, then you won’t need to pay tax on this amount. However, like above, if you earn over the exemption limit, you need to file a tax return and the entire sum is taxable.
Track unrealized losses
Got a crapcoin or fallen foul of a rug pull or the FTX fallout? Bad investments happen, but you won’t know which your poor performers are unless you’re actively tracking the performance of your entire crypto portfolio. In other words, use a crypto portfolio tracker tool to keep track of where you should cut your losses. Koinly works as a crypto portfolio tracker (and it’s totally free to use).
You can also work with an accountant or tax professional to help identify losses and poor performers. Koinly is an accountant-friendly platform. Simply invite your accountant to view your crypto portfolio from within the Koinly app! Looking for a German accountant with crypto experience? Browse our directory to find one in your area.
Harvest crypto losses
Once you know which investments you’re cutting your losses on - you need to realize your losses by disposing of them.
Remember, in Germany, you’ll only pay tax on short-term investments - so crypto you’ve held less than a year. This means you can only offset your short-term losses, as your long-term losses aren’t taxed.
So if you have a poor performer for the year, make sure you dispose of it by selling, swapping, or spending it before the end of the financial year to realize your loss and harvest it.
Once you’ve harvested your losses, you can offset them against your gains for the year. This can help you reduce your overall tax liability considerably if you’re strategic about your disposals throughout the financial year.
Gift for a lower tax rate
Got a spouse who’s in a lower Income Tax bracket than you? Get strategic with who makes the transactions you’re planning.
You can gift crypto to your spouse in Germany up to a value of €500,000. This exclusion limit renews every 10 years. So if you’re planning on selling short-term investments and you’re in a higher tax bracket than your spouse, you can lower your tax bill by gifting crypto to them and letting them make the disposal. They’ll then be taxed at their normal Income Tax rate on any profits from short-term investments.
Be strategic with the assets you use in DeFi
DeFi tax is complicated in Germany - it’s why we wrote a dedicated guide on it!
But if you’re strategic about the assets you use in DeFi - you can benefit from the same tax free holding rules. For example, if you use crypto you’ve held more than a year to add liquidity to a pool - you’ll pay no tax on that trade when you receive your liquidity pool tokens. Similarly, if you leave your assets in the pool for a year (and hold your liquidity pool tokens for a year), you’ll pay no tax when you remove your liquidity from the pool either.
Check out our German DeFi tax guide for more information, but in brief- utilizing assets held more than a year in DeFi investments will significantly reduce your tax burden.
Read next: The Ultimate German DeFi Tax Guide
Use a crypto tax calculator to simplify it all
Want to simplify crypto tax altogether? Use a crypto tax calculator - like Koinly.
Koinly helps you track all your investments, both short-term and long-term, so you know when to realize your gains and losses. It also calculates your crypto tax liability for you, including any short-term gains or income.
All you have to do with Koinly is sync the wallets, exchanges, and blockchains you use via API or by uploading a CSV of your transaction history - then Koinly does the rest. You’ll only ever pay for Koinly when you want to download your tax report - with plans starting from €39. Sign up and try Koinly free today.