Bitcoins and the tax: The bill comes later | NOW

You have invested in bitcoins or other cryptocurrencies and hopefully made a little profit. Or you’ve even made a small fortune. As a cryptocurrency trader, what should you be aware of when filing your tax return this year?

Cryptocurrency and the tax return have both a positive and a negative side. The good news is that you will likely pay little or no tax on your digital coin assets this year. The bad news? That bill will come next year.

However, the taxes for the assets in digital coins are not that bad. For example, you do not pay VAT on your purchase of crypto coins, as is the case with, for example, the purchase of a car.

The European Court of Justice has previously ruled that cryptocurrencies serve as a means of transaction and are therefore not subject to VAT.

Income from e.g. bitcoins probably also does not count in box 1 with income from work and home. However, if you trade crypto-coins ‘hugely’ and you can actually see it as a profession, then that income can fall into box 1.

However, if you have traded privately and not professionally, you only need to list your crypto assets under ‘other assets’ in box 3 to determine the assets.

wealth tax

If your total wealth minus your debts is higher than the tax-free capital (25,000 euros), you must pay wealth tax on that capital. Investments in cryptocurrencies are part of this asset.

But the price of the crypto coins fluctuates constantly. How do you determine what your wealth in bitcoins or altcoins is to the tax authorities?

Many other investments also fluctuate in value, so the tax authorities have come up with something to keep it simple. For the tax return, you must take the assets on 1 January of the year you submit your tax return. For the upcoming tax return, this so-called reference date is therefore 1 January 2017.

Positive

This time it is positive for crypto coin owners. On January 1st of last year, the crypto coins were not worth nearly as much as they are now.

Suppose you had 10 bitcoins at the beginning of last year, they were worth about 900 euros each at the time, which totaled about 9,000 euros.

For example, if you also had 3,000 euros in savings and a student loan of 10,000 euros, your total wealth would be 2,000 euros. It is well below the limit of 25,000 euros and you do not have to pay wealth tax.

For many people, the real tax bill for the significant increase in value in 2017 will not come until next year. On the reference date of January 1, 2018 for next year, one bitcoin was worth no less than 11,000 euros. In the example, the value of the basket of 10 bitcoins has therefore increased to 110,000 euros.

Higher power

If we count again with a student debt of 10,000 euros and savings to the value of 3,000 euros, the total wealth comes to 103,000 euros. Next year, as a single person, you will have a tax-free capital of 30,000 euros, which makes the taxable capital 73,000 euros.

Tax assumes that you receive 1,523 euros in benefits on this capital, and you pay 30 percent tax on that. So in the end you have to transfer 457 euros in wealth tax.

The higher the capital, the more you pay relatively because the tax authorities expect you to achieve a higher return.

Well, many crypto coins have increased in value last year but have actually decreased in value this year.

Price drop

What if the price of bitcoin falls much further next year, will you still have to pay that wealth tax?

The tax authorities agree with that, says tax expert Joost de Leeuw from Duijn’s Tax Solutions. Regardless of what you do with your crypto assets or what happens to the price of crypto coins, the tax authorities will look at the value on January 1, 2018.

“In theory, it is therefore possible for the price of bitcoin to fall so far that you pay more in taxes than the value of your bitcoin,” says De Leeuw. But in theory, investors in shares or real estate, for example, also have this risk.

Even if the bitcoin is stolen, as often happens to investors, the wealth tax must be paid. De Leeuw makes a comparison with a summer house. If it burns down without you having insurance, the IRS doesn’t take it into account.

“You must be able to show that you have earned the white”

Joost van Leeuw

Trade history

Next year, Van Leeuw expects several tens of thousands of Dutch people to declare significantly higher amounts for wealth tax. He advises people who have made a decent amount of money to specifically list their trading history so that a potential IRS inspector can easily see it.

It’s striking to the IRS when someone goes from nothing to a few tons of assets.

Suppose you bought a few bitcoins in 2013 and did a little trading, not much happens. “But if you earned 1 million euros with daytrading of 10 euros, then you must be able to explain it. You must be able to show that you have earned the white.”

Read more background stories in NUweekend

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