Hello 👋,
In this article, we are going to explain how to pay less tax by choosing between two tax methods.
Since 2023, taxpayers can choose between the flat-tax or the income tax scale for the taxation of their gains made on cryptocurrency operations.
💡 This choice can be extremely advantageous and can lead to significant savings. Therefore, for this year 2024, you will have to make the choice for the tax on your crypto operations carried out in 2023.
🚨It is important to note that we cannot provide specific advice on the choice between these two regimes, as each case is unique. However, we strongly recommend reading this detailed article on the subject and using the government simulator. These resources will allow you to make an informed decision that best suits your personal situation.
How to know what is most advantageous for my taxes?
How to choose the income tax scale option?
In this article, we will explain everything to you. 👇
1️⃣ The default taxation: the flat-tax of 30%
By default, and since 2019, gains made in cryptocurrency are taxable at the flat-tax (also called PFU) of 30%.
👉If you do not choose income tax, you will therefore be taxable at the flat-tax of 30%.
As a reminder, the 30% is composed as follows:
17.20% social levies
12.8% tax
2️⃣ The optional taxation: the income tax scale
👉 If you decide to choose to be taxed according to the income tax scale, you must first be aware of the tax brackets (this scale changes every year).
Here is the scale and tax brackets for 2024
💡 The income tax scale is progressive, meaning it works on a tiered system.
For example, if the amount of your taxable income is €30,000, then:
- The portion below the first bracket of €11,294 will not be taxable;
- Then the portion above up to €28,797 will be taxable at 11%;
- Finally, the remaining portion above (€1,203 in our example) will be taxable at 30%.
If you decide to choose taxation according to the income tax scale, the amount of your taxable crypto gains will be added to the total sum of all other income subjected to the scale! (this can include salary, interest from various investments, etc…)
❗️ The crypto gains can therefore increase your tax bracket.
It can also be between two tiers, which could lead, for example, to a part of your income being taxable at one rate and another part at a higher bracket.
So, it’s not always profitable and it really depends on the individual case!
3️⃣ How to pay less tax? Which taxation to choose?
💡Contrary to many misconceptions, even if you are in the 11% bracket, this does not necessarily mean that choosing the tax scale option will be more advantageous because other elements must be taken into account such as the tax discount for low incomes or the number of shares in your tax household (married couple, single, children or not, etc.).
▶️ The choice between the flat-tax and the tax scale should be simulated in advance to avoid paying too much tax; several pieces of data will be necessary.
It is therefore always necessary to carry out a simulation.
👉 We will guide you step by step to perform an accurate simulation of the amount of tax you will pay at the flat-tax and at the tax scale.
4️⃣ Generic Example
Let's take a generic example:
For the year 2023, I earned €20,000 in salary and realized €7,000 in crypto gains.
What is the most advantageous option between the flat-tax and the income tax scale to pay less tax?
Follow the 5 steps 👇
Step 1️⃣ - Go to the official 2024 tax administration simulator
👉 Choose the full model (the simplified model only allows for the standard declaration of salaries and current expenses). The full model will give you access to all the income declaration forms for various sources.
Step 2️⃣ - Fill in the first page concerning your personal information, your family situation, and dependents, if applicable.
Step 3️⃣ - Select the boxes corresponding to the types of income you received during the year 2023
In our example, we will only check 2 boxes for types of income:
The first box to declare our salary
The box for "capital gains and miscellaneous gains" which allows us to declare our crypto gain.
❗️ If you received other types of income during the year 2023, you will need to check the corresponding boxes for each type of income.
Step 4️⃣ - Fill in box 1AJ for wages and salaries
In our example, we declare €20,000 in salary.
Step 5️⃣ - Fill in the section for capital gains and miscellaneous gains (crypto gains)
▶️ The box 3AN allows you to declare your capital gains.
In my example, I declare €7,000 in crypto capital gains.
(❗️ Here you should enter the total sum of the year's capital gains, possibly deducted by any capital losses from the same year)
▶️ The box 3CN allows choosing the option for the tax scale.
For this first simulation, we will not check it to find out the amount of taxation at the flat-tax.
▶️ If you have declared all your other incomes, click on "next" until you reach the calculation phase.
▶️ Click on CALCULATE
The simulation will appear:
Choice of the flat-tax: The amount of tax to be paid in the context of the example will be €2,299.
Step 6️⃣ - Comparison with the income tax scale option
▶️ To find out the amount according to the income tax scale, I can go back and check the box 3CN corresponding to the choice of the income tax scale.
Choice of the income tax scale: The amount of tax to be paid in the context of the example will be €2,521.
▶️ By choosing the flat-tax, I would pay €2,299, which means €222 less in tax.
✅ The flat-tax is therefore more advantageous.
If you have any questions, do not hesitate to contact us via the blue window at the bottom right of your screen.
The Waltio Team 💙