Options are capital investments for advanced investors. Their performance is linked to the prices of underlying assets such as shares, indices or even commodities such as gold. Due to their leverage effect, however, even small price changes of the underlying assets lead to high profits or losses. For this reason, options are often not held until maturity, but investors collect the profit or loss through a so-called closing transaction during the term.
When do losses have a tax-reducing effect?
In a recent ruling, the Federal Fiscal Court (Case No.: XIII R 27/21) dealt with the taxation of income and settlement expenses from options over time. The case was based on the following - simplified - constellation: In the first year, the investor had earned income of 1,000 euros from a covered option, on which 250 euros of final withholding tax was levied. In the second year, he paid 990 euros to close out the option, which are recognised as losses for tax purposes. However, since losses cannot be offset against income from the previous year, there was no pro rata refund of taxes, although the total profit from the transaction was only 10 euros. Rather, the offsetting expenses were placed in the loss offset pot in the second year. Consequently, they only have a tax-reducing effect if sufficiently high income or profits are achieved in the second year or thereafter. If this does not succeed or only after many years, the investor effectively pays 250 euros in taxes on a profit of 10 euros.
Federal Fiscal Court hands down investor-friendly ruling
The investor sued against this - successfully. The court ruled that closing-out expenses can be taken into account retroactively in the year of the option writer's income to reduce tax. The investor can recognise the expenses in the first year and only has to pay tax on the profit of 10 euros.
Investors can consider request for retroactive change of tax return
The investor-friendly ruling deviates from the opinion of the tax authorities, which is also followed by the banks. Investors should check their tax returns. This does not affect those who had earned income and incurred expenses from such option transactions in one year. In that case, they were offset against each other by the bank.
KPMG AG Wirtschaftsprüfungsgesellschaft
Archive "KPMG Tax Tip" (in German only)
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