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What’s the Secret to Saving Taxes with Crypto Transaction Fees? How to Save Taxes by Writing Off Crypto Transaction Fees
I’ll keep this simple. Every time you trade, sell, or swap crypto, there’s a fee. It might seem small, but those fees can add up—and here’s the kicker: they can lower your taxes if handled right.
Why Crypto Fees Matter for Taxes
Think of crypto like property. When you sell it, you either gain or lose money. The IRS taxes those gains. But transaction fees? They’re like tiny shields that protect part of your money from taxes.
Here’s a quick breakdown of how fees work:
- Fees in Dollars (Fiat): Paid in plain cash. These reduce your taxable profit directly.
- Fees in Crypto You’re Trading: Deducted from the amount you’re selling.
- Fees in Other Tokens (e.g., BNB): Paid using a third-party token, often issued by exchanges.
Let’s zoom in on fees paid in dollars because they’re the easiest to handle.
A Quick Example
David bought 1 Bitcoin for $20,000. Years later, he sold it for $100,000. Without fees, his taxable gain is $80,000 ($100,000 – $20,000). Now, let’s say the exchange charged him $500 as a transaction fee. That fee reduces his taxable gain to $79,500 ($100,000 – $500 – $20,000). See what happened? He just saved taxes on $500.
How to Report Fees
The IRS doesn’t want you to overcomplicate things. Just report the net amount (after deducting fees) on Form 8949. In David’s case, he’d report $79,500 as his gain—not $80,000. Easy.
Pro Tips for Capturing Fees
- Track Everything: If you’re trading often, those fees can pile up fast. Missing them means leaving money on the table.
- Use Crypto Tax Software: Manually tracking fees? That’s like trying to count grains of sand at the beach. Use software that automates this for you—it’ll save time and headaches.
If you’re serious about crypto investing, ignoring fees is like throwing away free money. Every dollar saved on taxes is a dollar back in your pocket.