The checking, approval and correction of draft tax returns

The deadline for filing the personal income tax returns for 2020 is 20 May 2021. As in previous years, the National Tax and Customs Administration (NAV) prepares draft returns on the eSZJA portal also this year. However, it is important to bear in mind that the tax authority prepares these drafts only on the basis of the data received by it, and therefore it is recommended that individuals always review their drafts and, if necessary, make corrections and add missing information before the filing deadline.

When checking draft returns, it is worth comparing income statements received by employees with the data included in the draft. It is also important to check the application of individual tax allowances to ensure that everything is correctly indicated. Finally, the donation of 1+1 % of the tax payable should not be forgotten either.

However, in addition to the above-mentioned general checks and declarations, there is also some additional information that a number of individuals need to include in their tax returns. This is because in the absence of mandatory data disclosure, NAV does not receive information on certain types of incomes and data, and as a result, these are not included in the draft returns either.

The following list, provides a few examples that individuals must pay attention to and supplement their draft returns with accordingly.

A frequent income-generating transaction in case of individuals is the sale and leasing out of immovable property;

Tax base reductions is a category for which it is also necessary to check the draft return, since individuals can decide on their application;

It is also important to highlight the group of incomes from abroad, since NAV does not receive information on these, and tax rules may vary, depending on their country of origin;

Finally, cryptocurrencies are becoming increasingly popular among individuals, both as a form of investment and as an additional source of income. However, it is important to point out that the additional income generated by trading cryptocurrencies is also subject to income tax.

The taxation of income from cryptocurrency trading in Hungary

In Hungary, currently there is no specific legislation on the taxation of income from cryptocurrencies. NAV has not yet published a general guide on how to handle such income for tax purposes. It is important to clarify that cryptocurrencies are not considered as money or a payment instrument in the traditional sense in Hungary; however, in accordance with the existing tax laws and regulations, it is possible to determine the amount of the tax due.

On the basis of the Personal Income Tax Act, it can be concluded that the exchange rate gains from the sale of cryptocurrencies can be regarded as so-called “other income”. This income should be included in the tax returns when the individual converts the cryptocurrency into legal tender (HUF, EUR, etc.) and generates a profit from it. In the case of individuals, the sale of cryptocurrencies belongs under the category of “other income” for tax purposes, and its mining falls within the scope of “activity carried out independently”. From a tax point of view, however, the biggest challenge is the determination of the amount of the income in HUF.

Profits from cryptocurrencies as other income are subject to 15% Personal Income Tax (SZJA), as well as to social contribution tax (SZOCHO) at the rate of of 15.5%. Expenses cannot be deducted in this case, and therefore the tax base for the SZOCHO payment obligation is currently set at 87% of the income. However, in order to determine the tax liability mentioned above, private individuals have an administrative obligation, since holders of cryptocurrencies have to maintain regular records of acquiring or selling cryptocurrency, in terms of what was the subject of the transaction, when and in what value. From such a record, an individual should also be able determine the difference between the purchase and the resale value of the cryptocurrency, from which the profit of the given transaction can also be calculated. In connection with the amount of the income determined, attention should be paid to the year in which the cryptocurrency was converted or transferred to the current account, since that is the year for which the income must be declared in the tax returns.

Furthermore, as mentioned above, there may even be cases where a private individual receives income from cryptocurrency mining. The additional income thus obtained must be considered as income from activity carried out independently. In this case, while the individual must still pay the 15% personal income tax and the 15.5 % social contribution tax, it is also possible to deduct expenses. There are two methods of expense recognition: the 10% expense ratio and itemised deduction. This way, actual expenses documented to have been incurred in connection with the performance of the activity, as well as the depreciation of tangible assets (cryptomining computers) can be recognized and deducted.

As mentioned above, the deadline for filing personal income tax returns is 20 May 2021, which means that the draft returns should also be checked until that date. It is worth, therefore, that private individuals review the abovementioned points, and correct the draft returns where necessary, since in the absence of such checking and correction, the drafts prepared by NAV automatically become final returns filed on the date of the deadline, which means that they can only be modified later by way of a self-revision procedure.