Are stock market profits taxable

Be careful with the taxation of stock market profits: The faux pas should be avoided

News from 07/05/2019

Many people start to trade in securities on the stock exchange, but forget about the legal steps that take place in the background. This can have fatal consequences, because profits from shares and all securities must be taxed and thus declared on the tax return. However, there are a few tips and tricks that must be observed in order not to fall into the trap. The next paragraphs will deal with these in more detail. In addition, the withholding tax and its importance for the taxation of profits from shares and securities are discussed in more detail. The tax exemption also plays an important role here.

Taxation begins with the selection of the broker

The taxation of profits from stocks and all other securities begins with the selection of the right broker. Brokers based in Germany automatically transfer taxes to the tax office in the event of a profit. Brokers who are based abroad, on the other hand, do not always use this. For example, there are different regulations in the UK regarding profits from securities than in Germany. Many brokers pay out the entire profit here. There is therefore no automatic taxation of profits here. Thus, the profits must be taxed and paid to the responsible tax office.

No matter which variant is chosen here, the broker should always be trustworthy and not only negative headlines appear. For example, can be recommended here. This is a trading platform especially for the smartphone or tablet, on which you can trade with experts. At the same time, it is also possible for beginners, for example, to start with a free credit so that they can just try out trading in securities and not take a risk straight away.

Which tax has to be paid in principle?

The taxation of profits from stocks, dividends or securities has been fundamentally changed since 2009: the withholding tax applies to every profit made in this regard. As soon as a security is sold and profits are made, these must be taxed in Germany through the withholding tax. The same applies to annual dividends from stocks or securities. The final withholding tax is 25%. In addition, the solidarity surcharge is taken into account. Those who are in church also have to pay church tax. This can increase the withholding tax up to 26.375%. The final withholding tax is basically the same for all persons who trade in securities. There is no graduation here. If the respective broker pays the tax automatically to the tax office, basically no further aspects need to be taken into account. In some cases, however, some brokers do not pay church tax to the tax office. In such a case, the customer must inform the broker if the broker is in the church. There is therefore an obligation to report, otherwise there is even tax fraud. In some cases, however, there may also be a special case: If shares or securities of all types were purchased before December 31, 2008, other rules may apply. If there is a period of less than a year between the purchase and December 31, 2008, the withholding tax must still be taken into account. On the other hand, if the period is longer than a year, the profits from the sale of the shares or securities do not have to be taxed. The broker's customer therefore receives 100% of the profits.

A distinction must also be made between the various tax terms, which can sometimes cause confusion. In principle, there is only one tax that is applied to profits from shares - the withholding tax. In some cases, however, this is also referred to as capital gains tax. It is merely a description of the tax that is levied on profits from capital income. This is always the final withholding tax. The term withholding tax is also mentioned in part in this context. However, this only indicates the type of withholding tax that is collected. If this is paid directly by the broker to the respective tax office, we are talking about withholding tax. In addition, the term speculation tax is also used by some institutions. Here, too, it is merely a synonym for the final withholding tax.

What are the advantages and disadvantages of the final withholding tax?

The final withholding tax has its advantages and disadvantages. On the one hand, this ensures a uniform tax rate. This is of course advantageous if there are particularly high profits, since the tax rate cannot increase here, for example. In addition, the withholding tax is advantageous for customers of brokers, who collect it automatically. This means that there is no expense in terms of taxation - this is automatically taken over and the customers do not have to worry about it any further. The final withholding tax is also provided with regulations, some of which can have advantages: Among other things, losses can be offset. Since there is a tax exemption, this can be achieved through the losses and thus the tax burden can be reduced or avoided. With the tax-free allowance, the final withholding tax can also convince, as it can be of particular importance for small investors who only trade small sums of money.

Of course, there are also disadvantages due to the final withholding tax: The tax amount is uniform, but if a profit is achieved that is only slightly above the tax-free amount, the full tax rate applies immediately. This can lead to painful tax charges. In addition, investors who owned their shares for more than 12 months prior to 2009 did not have to pay any taxes when selling the securities. Since the introduction of the final withholding tax, however, profits from long-term share transactions must also be taxed. This of course represents a financial disadvantage, which unfortunately cannot be avoided.

The tax allowance and its importance in relation to the taxation of profits

The final withholding tax for profits from investment income provides for an exemption of € 801 for individuals. For married couples, this amount is again € 1,602. The tax exemption is always valid annually. Anyone who sells shares and makes profits of less than € 801 does not have to pay taxes on them. The full winnings can therefore be paid out. The same applies to married couples up to € 1,602. But one of the biggest faux pas is already emerging here. As soon as profits of more than € 801 annually are generated through shares or securities, these must be taxed. This can be painful if the winnings are as low as € 900, for example. If you want to sell securities, you should therefore always think twice when it comes to smaller amounts.

How you can benefit from a cheaper test

The cheaper check is the check of the profits from securities in connection with the regular annual income. The cheaper check is carried out by the tax office and may be worthwhile for people whose personal tax rate is below the tax rate from the withholding tax. This is definitely the case for people who earn less than € 16,000 annually and who have profits from shares of less than € 50,000 annually. If this is the case, the KAP annex must be completed when completing the tax return. The tax office then checks how many taxes have been paid too much and reimburses them. If you are not sure whether the cheaper test can be worthwhile, you can still fill it out or tick it. In any case, there is a chance of benefiting from the taxes.