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Cryptocurrencies, Investments and Handling Trading Losses

Cryptocurrency is taxed

Many people still do not know understand crypto taxes, capital gains and regulation.

Do you have to pay taxes on my investments on platforms such as Binance or Basecoin? What happens if I lose money? What if these applications suddenly close and I lose all my money?

Virtual Currency, taxes and their capital Gains (or Losses)

Virtual currencies in Spain are regulated as a digital representation of value as they are not guaranteed by a central bank.

They aren’t tied to a recognized currency as such, Euros or Dollars. However, they can be exchanged, transmitted, stored or traded electronically. 

Does this mean that they are free of taxation in Spain? No, it doesn’t. These actions generate tax liability.  

When you trade shares or real estate, you are generating a profit on the price at which you bought it or, sometimes a loss. This is a capital gain or loss and forms part of the personal income tax. 

These capital gains or losses also occur in the field of cryptocurrencies.

When Do I Have to Declare? 

There are three possible scenarios where the Spanish state requires you to pay tax on these capital gains.

  • Selling Crypto: When you sell coins such as Bitcoin, Dogecoin or Stellar and buy them with euros.
  • Crypto exchange: You exchange one coin for another. For example an Ethereum for Bitcoin. 
  • Staking: When you invest in cryptocurrencies to stimulate demand. It consists of holding and storing cryptocurrencies in order to receive compensation in the form of additional coins.

It may happen that when selling your Bitcoin, you generate a capital gain because you sold them for more money than they cost you. However, it can also happen that the virtual market has fallen and you generate a loss. In both cases, you must declare it.

Crypto Taxes For Capital Gains

Crypto is taxed like personal income:

  • 19% tax on up to €6,000 of capital gain.
  • 21% for the next €44,000.
  • 23% for the following €150,000. 
  • 26% for more than €200,000.

Taxes For Cryptos Losses

Fortunately, crypto investors can avoid a double dose of bad news as capital losses are not taxed. What’s more, you can offset the loss against capital gains and other savings incomes, like interest or dividends.

What Happens if someone stole my Crypto?

If you lose your bitcoin or the online platform goes bankrupt, you would generate a capital loss. However, you don’t automatically receive compensation for the loss.

To remedy the situation, you must wait until a court declares the credit uncollectible. You can also wait one year from the start of the judicial procedure if the credit is still outstanding.

What Are The Special Rules For Taxing Crypto Capital Gains?

Spanish doesn’t have specific crypto regulations. So the general rules of compensation are used. Firstly, they are integrated and compensated in each tax period with the resulting positive or negative balance.

Then, the negative balance is compensated up to 25% of the savings taxable income of the tax period, together with the other savings on taxable income. You can do this over the next four years. 

What Does This Mean For Me?

Let’s imagine you sell your entire cryptocurrency portfolio at a €5,000 loss in 2022 because you sensed an even greater decline on the horizon and wanted to minimise your downside. At the same time, you sell Amazon shares and have a capital gain of  €2,000 and receive dividends of €3,000. 

First, we have capital gains and losses. 

  • Capital loss of €5,000 on a €10,000 cryptocurrency investment 
  • Capital gain of €2,00 for the shares sold, I purchased €2.000 and I have sold them for €4,000.
Capital gains and lossesTOTAL-3,000 
Dividends 3,000 
I can compensate 25% = – 750 -750 
I will be able to offset the €2,250 loss until 2026. 

It might have been a tough season for Cryptocurrencies, but, still, you can use these losses to offset possible capital gains during this tax year. Selling assets or obtaining savings income this year instead of in the future, will allow you to offset the taxation on this gain or savings income. 

As Sun Tzu said, in the Midst of Chaos, there is still opportunity.

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