Cryptocurrencies: how to optimize your tax return

The declaration of income received in 2021 opened on April 7, 2022. You have until at least May 24 to complete it online. And even before June 8, if you live in one of the departments from 55 (Meuse) to 976 (Mayotte). Among the income that the tax authorities should pay attention to is the profit from your investments in cryptocurrencies. Therefore, you must report capital gains on Form 2086 showing all of your transactions in 2021. Unlike other types of income, they are not filled in advance.

They will be subject to a single flat rate levy (PFU), known as the “flat tax rate”, which applies worldwide to capital income. Its rate is 30% overall, including 17.2% social security contributions and 12.8% income tax. However, there is a tax relief of 305 euros. In other words, total capital gains are only taxable if the total cryptocurrency gains generated in the past year exceed that amount. Thus, to avoid the flat tax, you can withdraw no more than 305 euros of income per year from your digital wallet.

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“Withdrawing your cryptocurrency assets in euros or dollars, and paying for goods or services with cryptocurrencies results in the payment of capital gains tax,” recalls Ronan Journeau, a lawyer who specializes in digital assets. “Less than 305 euros of transfers, you are exempt from taxes, and you do not need to declare capital gains,” he clarifies.

Convert Unrealized Capital Gains to Stablecoins

There is also a way to delay declaring and taxing your income without exposing yourself to the volatility of cryptocurrencies such as Bitcoin, Ethereum or XRP. To do this, simply convert your hidden profits into stablecoins such as USDT from Tether or USDC, i.e. cryptocurrencies whose price is indexed to “traditional” currencies such as the dollar. “This is a way to generate capital gains,” emphasizes Ronan Journo.

As long as you do not return the money in fiat currency (euro, dollar …), tax is not charged. The exchange of a digital asset for another digital asset, such as Bitcoin for USDT, does not actually result in taxation.

Mention in your application a rough estimate of his capital gain

Calculating capital gains in cryptocurrencies is complex and requires taking into account the total value of his digital portfolio during every transaction made during 2021. If you do not have a history of your transactions for your income statement and cannot correctly calculate each of your capital gains, “it is in your best interest to indicate this to the tax authorities in the “express mention” field provided for this purpose,” advises Ronan Journou.

If you have grouped all your transactions into one, reporting one total capital gain, it is preferable to report this, for example. This way, the tax authorities will be able to make sure that you are acting in good faith. And you should avoid penalties for willful omissions, which can be as high as 40% of adjusted taxes.

Get Tax Reduction with Cryptocurrency Donations

You can also get a tax rebate with a cryptocurrency donation. In this case, the organization or association that has benefited from this must be recognized by the French state as being of general interest or public benefit. The income tax reduction is between 66% and 75% of the amount paid, depending on the type of association. The amount of your donation must appear on the 7UF (or 7UD or 7UJ) box on your tax return (Form 2042).

In addition, your donation will reduce the total value of your crypto portfolio, which is taken into account when calculating your capital gain. Thus, it will also reduce the total amount of your taxable capital gains.

Be careful not to be seen as a professional

To avoid being taxed in excess of the 30% flat tax, you must ensure that your crypto capital gains are the result of activities that the tax authorities consider to be accidental and not ordinary. Otherwise, you will be recognized as a professional. And then the Industrial and Commercial Income Taxation (BIC) regime will apply and hence much higher taxes.

For example, if you have multiple computer screens dedicated to trading and you make most of your income from cryptocurrencies, you risk being considered a professional.

“You have to pay attention to the funds you use to invest, the frequency of your transactions and the level of their complexity, if you regularly use hedging and leverage effects,” warns Ronan Journou. “However, from 2023, the number of transactions will no longer count towards qualifying your activity,” he adds.

Another change coming next year is for taxpayers whose investments in cryptocurrencies are occasional activities: instead of being taxed at the flat flat rate (PFU) of 12.8%, you can choose to apply a progressive income tax scale. capital. An interesting option for non-taxable taxpayers, who would then only have to pay 17.2% of social security contributions. This choice also benefits households with a marginal tax (TMI) of 11%.

Moving to a country with lower taxes

Finally, you can avoid the flat 30% tax by simply moving abroad. Financial company HelloSafe and asset management consultant Cleerly have developed a map of European countries, indicating the level of taxation of cryptocurrencies for each of them. Along with Norway, Sweden and Finland, France is one of the countries with the highest capital gains tax rates. Conversely, Belgium, as well as Portugal, Luxembourg and Switzerland, are among the states that tax the least or even no tax on capital gains.

“Particular attention should be paid to the country of destination, as some states, such as Portugal, may in the future take measures to tax taxpayers,” warns Ronan Journou nonetheless. Taxation in each country can change quickly, so you should be well informed before you emigrate. In addition, to become a tax resident of another country, you must actually live there, and not just for a short period of several months. “You must have at least a primary residence there,” the tax lawyer clarifies. And it would be preferable to carry out their professional activities in the relevant state.

Therefore, going abroad is not necessarily the most obvious way to reduce the taxation of your cryptocurrency capital gains.

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