If Do Not Include Your Cryptos On Your Income Tax Return, You Can Face A Fine

The deadline for submitting the Income Tax Return is to begin (April 6). Many taxpayers are still unaware that not including earnings from cryptocurrencies can impost a high fine. This article tells you how to declare cryptocurrencies in the IRPF and what happens if you do not declare them if it is necessary to include them in this year’s Form 720 or the Wealth Tax.

The III Study on knowledge, habits and use of Fintech in Spain of November 2021, prepared by Asufin, reveals essential data regarding the use and investment in cryptocurrencies by Spaniards:

• 56% of people who operate with Fintech invest in cryptocurrencies, 30.1% more than in 2020.
• 26.2% declare having invested more than 6,000 euros in cryptocurrencies.
• Only 30.2% indicate that they know they will have to pay taxes on their earnings, while 28.4% do not know, and 41.4% indicate that they do not have to pay taxes.

These data show a lack of knowledge about the tax implications of investing in cryptocurrencies, both in the Personal Income Tax Return and in the Wealth Tax or the Form 720 (declaration on assets and rights located abroad).

How are cryptocurrencies included in the Income Tax Return?

Cryptocurrencies can be reflected in various ways in the Personal Income Tax, depending on their use. Therefore, for Personal Income Tax (IRPF), we must distinguish between:

• Gain or loss due to transmission. This section includes the cases in which cryptocurrencies are purchased or exchanged through digital platforms.
• Return on capital. This section include the cases in which we deposit cryptocurrencies on the platforms and generate interest.
• Gains and losses without transmission. This case occurs in the case of referrals, for example, when a person recommends another to use specific software and receives a commission in cryptocurrencies.
• Economic activity. This assumption refers to those cases in which cryptocurrency mining or cryptocurrency trading is carried out for third parties.

Taxation of profits and losses and income from capital in Personal Income Tax

Both gains and losses from transmission and capital gains are taxed in the special part of the Personal Income Tax at the following rates:

• 19% from 0 to 6,000 euros.
• 21% from 6,001 euros to 44,000 euros.
• 23% from 44,001 to 200,000 euros.
• 26% for amounts greater than 200,000 euros (this section is a novelty for this year’s income).

For their part, profits and losses without transmission and economic activity are taxed in the general part of personal income tax, and rates ranging from 18% to 47% will be applied to them.

Income Statement box for cryptocurrencies

One of the main novelties of this year’s Personal Income Tax form is that a new section appears to include the balances of virtual currencies that, until now, were included in a generic section of other goods and rights of economic content. This novelty is due to the fact that more and more people invest in cryptocurrencies, so the Tax Agency has decided to modify the declaration form so that the taxpayer can easily include cryptocurrencies.

What happens if you do not declare the cryptocurrencies in the IRPF?

If you do not include the cryptocurrencies in the Income Statement, the Tax Agency may impose a fine of 26% on the amount that has not been paid, based on the tax table. On the other hand, if you declare the cryptocurrencies after the deadline, they may impose a surcharge of between 5% and 20% depending on the time it takes to present the complementary declaration.

Should cryptocurrencies be included in Form 720?

About Form 720 relating to the year 2021, the Tax Agency has informed by order published in the BOE on March 18 that cryptocurrencies should not be included in said form since the corresponding development through regulations is lacking, although the Anti-Fraud Law establishes the obligation to do so. Xavier Vilalta, director of the tax department of ETL ILIA, already warned about this aspect a few days ago.

However, it is possible that in the coming months, the processing of regulation will begin to include cryptocurrencies in the informative declaration of goods and rights abroad (Model 720). But, as we said before, this will not affect the presentation of Form 720 this year. In this sense, the experts speak of a new form, Form 721.

What happens to the Wealth Tax and cryptocurrencies?

Cryptocurrencies must be included in the Wealth Tax as long as the requirements to declare them are met. The novelty regarding the wealth tax declaration is that new models have been approved by the Tax Agency based on which a specific box is included for the declaration of cryptocurrencies. Until now, there was not, as in the case of the Income Tax Return, a specific section for cryptocurrencies, but they were included in the section on other goods and rights.

It is essential to prepare the Income Statement if you have cryptocurrencies and collect all the information to prepare it correctly and avoid errors, inspections by the Tax Agency or sanctions. For this, it is advisable to have the help of expert tax advisors in the taxation of cryptocurrencies and Form 720 who study your case, prepare the declarations and present them promptly.