Do your gains from Crypto sold within a year in Germany raise your overall tax rate, or do they get taxed at your pre gains income tax rate?

Question

I sold some of my crypto within the one year holding period in Germany. Crypto hodled for more than a year in Germany is tax free (neither Capital Gains or Income Tax).

I am a musician and only earn approx 6000Euro per year. This means I pay Zero income tax. I got lucky with crypto, but freaked out and sold as the recent crash started to unfold. My gains if taxed 'as' my income may bring me to a much higher income tax rate (possibly higher than the Capital Gains tax rate). Eg. if your gains were say 70KEuro, would that put you in the highest income bracket and you would have to pay over 42% income tax?

If the gains are taxed at my current income tax level, I will then pay a neglible amount.

Could anyone please tell me which scenario is the likely outcome?

I thought that selling would just incur Capital Gains tax on the sale of approx. 25%, but now it seems it may be linked to the incremental income tax scale which could bring the rate much higher.

Note: Interestingly staking coins in Germany means they must be held for a 10year period before they become tax free assets (avoiding Capital Gains). On the other hand, depositing coins in a crypto bank and earning interest does not jeopordise your 1 year holding period.

Answer 1

I don’t know about rules for crypto currencies, but if income tax needs to be paid, then the income tax rate is calculated based on all your world wide income and deductions. And that tax rate is applied to all your German income.

Answer 2

Crypto sales are a privates Veräußerungsgeschäft (private sale) that is covered by §23 EstG. This is sonstiges Einkommen (other income). So the usual income tax is due on the gains, and not the flat capital gains tax.

The tax is always assessed on your entire taxable income. Thinking in “tax brackets” is misleading because these brackets only determine your marginal tax rate, not your entire tax rate. The first 9408 EUR are always tax-free (numbers for 2020 fiscal year). At 76k EUR total taxable income, your actual tax rate would be a bit over 30%, e.g. see this tax calculator. The calculator shows both the marginal tax rate and average tax rate, and lists the §32a EstG formula for tax brackets.

In practice, your actual income taxes will be lower since deductions might be available, such as payments for health insurance – but of course you won't end up with more net income.