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The ultimate guide to filing your tax return

The ultimate guide to filing your tax return

Every year it's a cross, so we've marked out the route for you.

Declaring your crypto income is always a complicated step, not least because you don't want to make any mistakes. We've prepared just that, with lawyer Alexandre Lourimi (ORWL), an ultra-comprehensive guide to help you find your way around with complete peace of mind.

Take a deep breath, the dive will go well!

🐳 I bought my first cryptos in 2022

You don't have to do anything because only transactions that took place in 2021 are affected by the 2022 declaration (opening an account on a platform and selling cryptos). The trouble will start next year, you lucky bastard!

🐳 I have an account on a platform established in France

Good news too, you don't have to declare anything either (if you didn't sell anything in 2021). There's no need to inform the tax authorities that you have an account with Coinhouse or Deskoin, as they can check it themselves.

🐳 I have an account on a foreign exchange platform

Having an account on Binance or Crypto.com is equivalent to having a bank account in Switzerland. You are obliged to report it to the tax authorities, but without disclosing what you have on it (catch your breath).

You need to tick the "Miscellaneous" box in step 3 of your tax return where foreign accounts are mentioned. This action triggers the opening of another window where you can specify what type of account it is (in this case a digital asset account ) via form n°3916 bis.

"This obligation concerns all accounts opened, held, used or closed in 2021, both on exchange platforms (Kraken, Coinbase, FTX, etc.) and on platforms offering returns (BlockFi, Celsius, Nexo, etc.)," says Alexandre Lourimi. "This declaration does not concern non-custodial wallets (Metamask, Ledger, etc.)."

Here is an example for Coinbase:

Account name: Coinbase

Institution designation: Coinbase Europe Limited

Designation complement: www.coinbase.com

Account number: this number does not yet exist on Coinbase

Account characteristics: private/business use and single/joint/collective account

Opening date: DD/MM/YYYYY

Address: 70 Sir John Rogerson's Quay, Dublin D02 R296 (Ireland)

🐳 What do you risk by not filling in a foreign account?

You risk a fine of €750 per undeclared account or €125 per omission or inaccuracy, up to a limit of €10,000 per declaration.

These amounts are doubled when the value of the assets exceeds €50,000. Enough to make you not want to "forget"!!

🐳 How do you declare your capital gains or losses?

You must then tell the taxman about all sales of cryptos made in 2021 against anything that wasn't cryptos (a legal currency such as the euro, or the purchase of a good or service).

No platform will do this for you: you have to do it yourself. And one important point: the fact that you have a capital loss does not exempt you from this step!

These transactions must be reported on Schedule 2086. To access this, you need to click on "Declarations ANNEXES" in step 3 of your return (at the very top of the page where you indicated that you had a digital asset account abroad).

For individuals, capital gains on the disposal of digital assets are subject to a single flat-rate tax regime of 30% (12.8% income tax and 17.2% social security contributions).

🐳 Do I still have to make a declaration if I haven't made a transfer from a platform to my bank account?

The time of payment of the euros into your bank account does not count. It is the act of exchanging cryptos for euros (or any other traditional currency) that generates tax.

🐳 If I simply exchanged my cryptos for stablecoins, am I taxed on these transactions?

No, because a stablecoin (USDC in $ or Lugh in €) is a crypto like any other. That's one hell of an advantage: crypto-crypto exchanges are not taxed for individuals.

🐳 How do you calculate the amount of your capital gain or loss?

Beware, stunt reserved for professionals! You will only have to calculate your gains or losses yourself (the taxman will do it for you) if you exceed 100 transactions per year.

Do not take into account the "transfer costs" and "balance received or paid" boxes. They are of no use in your case.

The overall capital gain is taxable only if the total of the disposals made is more than €305. If you're below that, you can turn your flippers.

🐳 What do you risk if you make an unintentional mistake? What if it's premeditated?

You risk an adjustment and the obligation to pay the difference between the tax due and the tax actually paid. "But if it's unintentional, the penalties could be largely waived," reassures Alexandre Lourimi.

If you haven't filed your return, the penalties can be up to 10% of the amount reassessed. Interest on late filing, at a rate of 0.2% per month of delay, could be halved if you spontaneously regularise your tax return under the "right to make a mistake". If you have deliberately committed fraud, you risk penalties of 40%. However, the tax authorities must show that you could not have been unaware that you were committing fraud. When it comes to crypto taxation, however, deliberate failure remains difficult to characterise.

"When the law presents a very large number of uncertainties, the tax authorities cannot legitimately expect taxpayers to have a clear view of the applicable tax regimes (passive income, NFTs, capital gains calculation formula, etc.)," points out Alexandre Lourimi. On the other hand, you may be accused of deliberate failure to comply if you have sold a substantial number of cryptos.

The most extreme case occurs when the tax authorities find that you have implemented actions designed to conceal the omission (presentation of false invoices for crypto purchases, use of tools designed to disguise the origin of the cryptos, etc.). In such cases, you may be penalised by penalties of up to 80% of the amount adjusted. Still interested?

🐳 In which cases do you risk being reclassified as a professional investor?

The flat-rate capital gains tax regime for digital assets ceases to apply when you carry on a digital asset trading activity under conditions similar to those of a professional.

Generally speaking, the amount of capital gains alone is not a sufficient criterion for tipping over into this category. "The professional nature of the activity results from a case-by-case assessment of each situation, based on a cluster of indicators including the amount of income generated, the frequency of transactions, but also and above all, the sophistication of the activity and its level of rationalisation (risk management, investment method, complex tools, etc.)," warns our expert.

In the event of requalification, the digital asset trading activity is taxed in the industrial and commercial profits (BIC) category. It is much less advantageous because the neutralisation of exchanges between digital assets is no longer applicable. Every sale of cryptos, whether against euros or cryptos, will have to be accounted for.

"The taxable result each year is equal to the sum of all capital gains and losses realised during the year. This result is subject to the progressive income tax scale (bracket from 0 to 45%) and, at best, to social security deductions at the rate of 17.2%," points out Alexandre Lourimi.

Don't worry, it's almost over.

🐳 You've sold an NFT, how do you declare this transaction?

Determining the tax regime for NFTs involves considering their legal classification. In reality, the NFT itself is of little importance. What matters is what it represents in practical terms. NFTs that represent 'rights' over the issuer could be described as digital assets. "In that case, the applicable taxation would be that of digital assets," explains Alexandre Lourimi.

However, it is likely that a large majority of NFTs do not fall into the category of digital assets. "One of the most notable consequences is the loss of the benefit of neutralising exchanges between digital assets," notes the lawyer. In this case, the purchase of an NFT in cryptos no longer constitutes a crypto-crypto exchange since the NFT cannot be qualified as such. Each purchase of an NFT in cryptos therefore constitutes a taxable disposal of the cryptos used to purchase the NFT...

With regard to the capital gain on the disposal of NFTs, two main regimes can be envisaged.

👉 Art object or collector's item. The flat-rate tax on precious objects could potentially apply if the NFT qualifies as an art object or collector's item. In the case of collections of profile photos for social networking sites, it is highly unlikely that the item would qualify as an objet d'art. However, for collections as emblematic as the Bored Ape (or the CryptoPunks), classification as a collector's item could be considered, although it remains rather implausible. If this were the case, you would have the choice between taxing the capital gain at the rate of 36.2% or taxing the amount of the disposal at the rate of 6.5%.

👉 Movable property. Failing to qualify as such, NFTs should fall under the sweeping regime for capital gains on movable property providing for taxation of the capital gain at the rate of 36.2%, but also an exemption for disposals where the amount does not exceed €5,000 and a deduction for the length of time held of 5% per year of ownership beyond the second year of ownership (i.e. a total exemption after 22 years of ownership). This is the regime that seems the most plausible for all NFTs that do not fall under the definition of a digital asset.

🐳 Have you earned income from yield services (lending)?

Already, don't think that as long as you stay in cryptos, there is no taxation! "This idea is very widespread because the capital gains tax regime on digital assets neutralises taxation in the event of exchanges between digital assets," points out Alexandre Lourimi. But, in the context of passive income, your realised gain is often not a capital gain, as it does not result from the difference between the sale price of an asset and its purchase price.

You therefore need to distinguish your passive income generated in the context of decentralised services from other passive income.

👉 Returns from decentralised protocols (Aave, Compound, etc.). Your passive income is generated through exchanges between digital assets. You deposit tokens in a pool in exchange for other tokens that represent your stake in the pool (LP tokens). When you decide to withdraw the tokens deposited, you exchange the LP tokens for an amount of tokens corresponding to your stake in the pool. If the value of the pool has increased, you will make a profit. In this case, you are technically still exchanging digital assets without incurring any tax.

👉 Returns from centralised services (Coinhouse, Just Mining, Nexo, etc.). The tokens you earn are taxed when you receive them because they constitute interest received in return for making capital available. This interest is therefore taxed at 30%.

"In practice, it can be particularly complex to track the acquisition value of passively acquired tokens: firstly, not all services provide sufficiently detailed information, and secondly this income is paid out very regularly (sometimes every minute)," insists Alexandre Lourimi. "Now, referring to the asset price at each acquisition is humanly impossible, which is why many choose the pragmatic option of declaring these cryptos only when they are resold in euros", he declares.

🐳 How to declare staking income?

This income comes from making tokens available to participate in the operation of a protocol (e.g. ETH are stake to protect Ethereum 2.0). It is therefore likely that the "acquisition gain", i.e. the value of the cryptos on the day they are received, will not fall into either of the two categories mentioned above.

"It is therefore preferable to opt for the non-commercial profits regime (progressive income tax scale and social security deductions at 17.2%)," advises Alexandre Lourimi.

The same applies to income from mining.

🐳 How do you declare a sale of tokens from an airdrop?

In principle, if you receive an airdrop, you are not automatically taxed. Why not? Because an airdrop is purely occasional, unpredictable and random. In other words, the gain you might make does not have the characteristics of taxable income.

There are two options for declaring them:

At worst, the cryptos you received as part of an airdrop are included in the value of your portfolio and are only taxable when a taxable transfer takes place, against euros for example. In this case, their total value would only be taxable at that time at the rate of 30%. 🙄

At best, the euro value of your cryptos when you receive them could add to the total acquisition price of your portfolio. In this way, only the difference between their receipt value and their value at the time of a taxable transfer would be taxable. The receipt value would never be taxed. 🤑

🐳 What will change in 2023?

While there is nothing new for this 2022 edition, a few changes are expected for 2023 (for 2022 income). You will have the choice between flat-rate taxation at 12.8% (the only formula currently in force) or application of the progressive income tax scale. In both cases, you will have to add social security contributions at the rate of 17.2%.

This option will only be of interest to those of you in the 0% tax brackets (income below €10,225 for 2021) or the 11% tax bracket (income between €10,226 and €26,070).

Also, for those of you who are trading professionals, you should be aware that you will come under the non-commercial profits (BNC) tax category.

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