[Legal help Austria] Having to pay more tax than profits made?

[SamEmpori]

So here's the case, a friend of mine was doing a tax analysis on his income in the cryptocurrency environment.
He started with roughly 10.000 dollars in 2017, and made a lot of crypto to crypto trades.

In 2017, he owes 70 to 80K in taxes because of these crypto to crypto trades.
In 2018, he owes about 50K in taxes as well.

He is at roughly 100K at the moment in value. That means he has to pay more taxation than he is owning. Is there anything he can do, at all? Any help is much valued.

[pawel7777]

I know nothing about taxes in Austria, but it very much looks like your "your friend's" calculations are off. The very purpose of tax is for the gov to take a slice of your profit, anything above 100% couldn't even be considered a tax, but rather some strange penalty charge. Best to enquire directly with your local tax office.

It seems to me that you treat every trade (crypto/crypto) as a taxable event (with tax calculated at a current fiat value) and the >100% tax rate is a result of much higher BTC price during the tax year than at the end of the tax year. If so, I would imagine there must be a possibility to either re-calculate all your taxable profits using the rate at the end of the year (assuming you haven't cashed-out) or just offset your gains with exchange rate movement losses.

[christysmile]

Did you calculate losses? Because there evidently should be a few losses to settle at that amount. Losses can be declared against gains (and even carried forward for several years to deduct taxes paid on future gains).

I'm not sure how that number was arrived at, but it seems to be just focusing on the gains (and each event as was mentioned above). Maybe consider taking a closing total? Accountants don't bother calculating each and every trade because all that matters is what's left at the end. Unless of course you can claim commissions as tax deductible.

[Flor1982]

So here's the case, a friend of mine was doing a tax analysis on his income in the cryptocurrency environment.
He started with roughly 10.000 dollars in 2017, and made a lot of crypto to crypto trades.

In 2017, he owes 70 to 80K in taxes because of these crypto to crypto trades.
In 2018, he owes about 50K in taxes as well.

He is at roughly 100K at the moment in value. That means he has to pay more taxation than he is owning. Is there anything he can do, at all? Any help is much valued.

I think this is not possible because not only you are the one who is working and earning profits in the country in which many people will be complaining if this is what happening in your country. Maybe there is an data error on your first documents during your filing in 2017 in which you maybe mistakenly input a higher income figures on it therefore the best thing you will do is to go to your government agencies to clarify this thing because we are working hard for our family but not for the government.

[Don Pedro Dinero]

It seems to me that you treat every trade (crypto/crypto) as a taxable event (with tax calculated at a current fiat value) and the >100% tax rate is a result of much higher BTC price during the tax year than at the end of the tax year.

Yes, some politician idiots have passed such laws in other countries. There was a similar taxation on gambling profits in some regulated countries but they finally had to change the law.

Is there anything he can do, at all? Any help is much valued.

If I were him, I would appeal. And I would try to contact the press to explain the case.

[gentlemand]

in many a place not having the tax to meet your liability is your problem. At the moment of the taxable transaction you did have the money to pay it. It's not the tax man's problem if it's subsequently been lost or bet elsewhere since or more likely the overall value has just gone down.

Each country will have a different approach so there's no point in listening to anyone other than a tax professional trained in Austria. There may well be a simple way of dealing with it.

[audaciousbeing]

So here's the case, a friend of mine was doing a tax analysis on his income in the cryptocurrency environment.
He started with roughly 10.000 dollars in 2017, and made a lot of crypto to crypto trades.

In 2017, he owes 70 to 80K in taxes because of these crypto to crypto trades.
In 2018, he owes about 50K in taxes as well.

He is at roughly 100K at the moment in value. That means he has to pay more taxation than he is owning. Is there anything he can do, at all? Any help is much valued.

With my little knowledge of taxation and accounting, I am certain that there is something that your friend is doing wrong because aside the tax law that is applicable to specific subject matter, there is always a tax policy that guides the general tax culture of the country and I have not seen any country whose tax policy would take more than the entire profit of an economic activity, that by default a loss position which most countries would either give loss relief or deffer the payment of tax.

What I suggest that you and your friend should do is to either hire a practicing accountant or a tax consultant to do the computation and if you cannot afford one, there is always room for self assessment in which you can consult textbook, or papers that have been written on the subject matter can aid your computations.

[HeRetiK]

I'd recommend getting in touch a tax advisor. Really it's something I'd recommend to anyone who's earning a significant income that's Einkommenssteuerpflichtig. They are usually not that expensive and either way save you a lot of money and trouble more often than not.

Here's a tax advisor of which I'm aware of that she's focusing on cryptocurrencies:
https://www.enzinger-stb.at/

I have no personal experience with her, but I know that she's been giving some talks in Vienna and is (or has been) working with Bitcoin Austria.

However given how income from day trading crypto is not much different from day trading stocks, any capable tax advisor should be able to help your friend -- or at least support them in handling tax authorities to alleviate the worst.

Edit: Also I'm not sure whether these trades are actually taxable until they get exchanged for EUR again. But that's something that a professional tax advisor will be better able to answer. Also, here's some basic information on (crypto) taxation in Austria:
https://bitcoin-austria.at/de/artikel/bitcoin-steuern-oesterreich/20170301_Bitcoin%20und%20Steuerrecht_Folien.pdf

[pawel7777]

in many a place not having the tax to meet your liability is your problem. At the moment of the taxable transaction you did have the money to pay it. It's not the tax man's problem if it's subsequently been lost or bet elsewhere since or more likely the overall value has just gone down.

Hate to say it, but it's actually a good point and it makes sense. You could argue tho, that with crypto-to-crypto trade you don't earn "money", so you can't make provisions for the tax due, but still you could convert appropriate portion of your cryptos to fiat... This shit can be a minefield.

[gentlemand]

Hate to say it, but it's actually a good point and it makes sense. You could argue tho, that with crypto-to-crypto trade you don't earn "money", so you can't make provisions for the tax due, but still you could convert appropriate portion of your cryptos to fiat... This shit can be a minefield.

I do recall more than a few Americans saying they owed vastly more in tax than they had in their wallet due to crypto when tax season came around but perhaps they haven't interpreted their tax laws correctly. I dunno what the deal is with losses.

Everything hangs on where you live. What'll have you jailed somewhere, won't even be a problem elsewhere. But in other areas of life it's your lookout to put your tax cut aside no matter what subsequently happens.

Anyway, if I were running this forum I would not have a legal section. Nothing good comes of asking the internet clueless about stuff like this.

[Harlot]

It's his problem now, the way I understand it is the value of his portfolio increased during your annual tax report and he hold it through while the value of his portfolio got down to the point of 100,000$. So even if his cryptocurrency holdings is now below than his tax liabilities he still has to pay it, I am even wondering why he haven't paid his tax liabilities as of last year. Your taxing department won't probably consider the losses you incurred after every tax report you have submitted. You still have the same liability in their eyes.

[christysmile]

It's his problem now, the way I understand it is the value of his portfolio increased during your annual tax report and he hold it through while the value of his portfolio got down to the point of 100,000$. So even if his cryptocurrency holdings is now below than his tax liabilities he still has to pay it, I am even wondering why he haven't paid his tax liabilities as of last year. Your taxing department won't probably consider the losses you incurred after every tax report you have submitted. You still have the same liability in their eyes.

Yeah this is a good point actually. And it also brings up the issue of past taxes owed. If he didn't file last year he might have been charged a good amount of interest on top of that.

in many a place not having the tax to meet your liability is your problem. At the moment of the taxable transaction you did have the money to pay it. It's not the tax man's problem if it's subsequently been lost or bet elsewhere since or more likely the overall value has just gone down.

Hate to say it, but it's actually a good point and it makes sense. You could argue tho, that with crypto-to-crypto trade you don't earn "money", so you can't make provisions for the tax due, but still you could convert appropriate portion of your cryptos to fiat... This shit can be a minefield.

That's why they calculate it as year-end finals, isn't it? So that they don't get into minor discrepancies about gains and losses along the way. There's no way that they can charge you for every gain and ignore losses. That's just not a sustainable business.

Unless it falls under gambling?

[milewilda]

It's his problem now, the way I understand it is the value of his portfolio increased during your annual tax report and he hold it through while the value of his portfolio got down to the point of 100,000$. So even if his cryptocurrency holdings is now below than his tax liabilities he still has to pay it, I am even wondering why he haven't paid his tax liabilities as of last year. Your taxing department won't probably consider the losses you incurred after every tax report you have submitted. You still have the same liability in their eyes.

Same question in my mind too why he do still owe on last years tax liability which it should be settled up. As most people do say on here we would really need up a tax advisor based on your friends place or country because they do have the best answer related to this matter. Tax wont really just based on its current holding or its capital itself and as being said they wont consider losses and you are really obliged to pay up.

[pawel7777]

...
That's why they calculate it as year-end finals, isn't it? So that they don't get into minor discrepancies about gains and losses along the way. There's no way that they can charge you for every gain and ignore losses. That's just not a sustainable business.

They don't ignore losses. The problem is when you don't make provisions towards tax (you don't put fiat money aside) and you wait till the end of the tax year. You're exposing yourself to crypto/fiat price fluctuation risk. Example (let's assume 20% tax):

Early in the year you made profit on crypto-to-crypto trade of 1 btc, worth $20,000 at the time.
Later in the year you traded with loss of 0.5 btc, but bitcoin price fell down to $6,000, so you lost $3,000.

At the end of the year the rate is 1btc = $8,000.

You would think that since your total profit was 0.5 btc x $8,000 = $4,000 - your total tax would be $4,000 x 20% = $800. But taxman is only looking at fiat value at the time of the trades, so: 1st trade profit $20,000 less 2nd trade loss of $3,000 = $17,000 at 20% = $3,400.

So, in this case, tax is 85% of your actual profit.

...
Unless it falls under gambling?

In the UK day trading that falls under 'speculative' category is treated at par with gambling. You don't pay tax on gains, but you can't deduct losses. Source: https://www.daytrading.com/taxes/uk