Are crypto trading fees tax deductible? What to know

Many crypto-related activities come with a fee. Generally, these crypto trading fees don’t qualify as standalone deductions – but you should still include them in your crypto tax records.

Despite their non-deductible tax treatment, crypto transaction fees directly affect your cost basis and proceeds, which can reduce the amount you pay. Taking the time to include all your crypto transaction fees can significantly impact your total capital gains or capital losses.

In this guide, we’ll explain the tax treatment of crypto trading fees and dispel some of the most common misconceptions around trading fee taxes in the United States.

How are cryptocurrency trading fees taxed?

Crypto trading fees don’t qualify as itemized deductions, but they alter how traders calculate their gains and losses. Understanding how the IRS views cryptocurrencies can make it easier to see how fees fit into your tax return.

“Cryptocurrencies as property” explained

In Notice 2014-21, the IRS classified virtual currency as property rather than currency for federal tax purposes. This puts cryptocurrency in a similar category as other investable assets like stocks that follow capital gains tax rules. When crypto traders sell digital assets and the proceeds exceed their cost basis, the resulting gain is subject to capital gains tax.

Crypto trading fees change your tax math

Per the IRS, most fees for trading and transferring cryptocurrencies are included in your cost of acquisition rather than treated as separate deductions. That means transaction fees increase your cost basis for purchases and decrease your proceeds at the time of sale – which can lower how much you pay in capital gains tax.

What crypto fees qualify for tax reductions?

Any fees related to buying, selling, or transferring cryptocurrencies could impact your capital gains tax calculations, but some fees are more common than others.

Exchange fees

Centralized crypto exchanges (CEXs) and brokerage platforms often charge fees for services like buying and selling tokens or transferring crypto on and off their platforms. Some exchanges also have commission fees or a maker/taker fee relevant for taxes.

All of these exchange fees typically increase the cost basis for crypto acquisitions and reduce proceeds for disposals. This principle still applies if the exchange only reports your proceeds (and not your cost basis). For this reason, it’s a good idea to keep a record of your cost basis so you can identify where fees apply and accurately report them to the IRS.

Network fees (aka gas fees)

Sending crypto on decentralized blockchains comes with transaction costs, often called network fees or gas fees. These fees compensate the validators and miners who process transactions on the network. Their costs vary by chain and can increase or decrease depending on network congestion and transaction complexity.

Gas fees are considered part of the transaction cost and alter either the cost basis or proceeds. For example, the gas fees on a decentralized exchange (DEX) apply when swapping between digital assets, and they also factor in when buying or selling non-fungible tokens (NFTs) on marketplaces, too.

For non-taxable events like transferring between self-custodial crypto wallets, the tax treatment of gas fees isn’t as clear-cut. Since the IRS doesn’t issue explicit guidance on this topic, it’s a good idea to keep records of these transaction fees and include them in detailed tax reports to avoid any confusion.

Wallet fees

Some self-custodial wallets, like MetaMask and Phantom, charge fees to let users buy and swap crypto in the app. If you use one of these features to buy, sell, or exchange crypto, include the fees in your tax calculations to increase the transaction’s cost basis or reduce your proceeds.

Conversion fees

Sometimes there are additional service fees for crypto-to-fiat conversions or transactions between different digital assets. Treat these costs as you would other exchange fees: Add them to the cost basis for acquisitions and subtract them from the proceeds for dispositions.

Taxable vs. non-taxable events

For tax reporting purposes, a capital gain or loss is triggered whenever you dispose of a digital asset — whether by selling for fiat currency, swapping for another digital asset, or spending it on goods or services. You’ll report the proceeds from this disposal in USD and calculate your gain or loss by subtracting the cost basis. Include the transaction fees associated with your initial purchase and disposal to adjust your capital gain or loss.

There are also a few non-taxable events where crypto investors pay fees. For example, you’ll often pay fees to transfer crypto from an exchange account to a self-custodial wallet. And some advanced DeFi activities – like liquid staking, wrapping, and token bridging – aren’t disposals in the traditional sense but still carry fees. There’s no formal guidance on how to treat transaction fees in these cases, but you should keep records of these costs in case the IRS requests documentation.

Common mistakes with crypto transaction fees

Recording and incorporating crypto transaction fees can have a positive impact on your tax calculations, but only if your records are free from these common errors:

• Mistaking transaction fees as deductions: Some crypto investors mistakenly assume that transaction fees are a separate category of itemizable deductible expenses, similar to investment interest expenses (IRS Form 4952). In reality, you won’t add transaction fees to Schedule A, but rather directly to the cost basis for buy orders or subtract them from proceeds after a sale.
• Missing gas fees on DeFi trades: Crypto traders engaged in decentralized finance (DeFi) don’t always take the time to record gas fees for their DeFi activities, even though these costs generally can increase cost basis or reduce proceeds. If you haven’t captured everything in the moment, carefully review your transaction history on blockchain explorers or use CoinTracker to capture these transaction fees and avoid over or underestimating proceeds.
• Mislabeling transfers as sales: When you’re recording your crypto activity, distinguish between taxable disposals and non-taxable transfers between exchange accounts or self-custodial wallets. Any transfers misclassified as sales will trigger incorrect capital gains calculations that you’ll have to clear up with the IRS.
• Overrelying on 1099 proceeds: CEXs now issue IRS Form 1099-DA with information about proceeds on their platforms, but these reports don’t tell the whole story. CEXs often don’t have the necessary information to report an accurate cost basis. Use your own cost basis, transaction fee, and total proceed records to reconcile the data on a 1099-DA before filing your taxes.
• Ignoring fees paid in a different token: Purchasing one cryptocurrency with a different token counts as a taxable disposal and often carries transaction fees. For example, if you buy an NFT with Solana (SOL) on Magic Eden, you need to report the cost basis and fair market value (FMV) of SOL at the time of the transaction, subtracting gas and marketplace fees from the final sale.

How to report crypto trading taxes: 5 steps

The best way to avoid audits or error notifications from the IRS is to start with a thorough and well-organized record of your crypto transaction history. To stay on track, keep these five strategies in mind during tax season.

Keep detailed records

Crypto investors need reliable tools and procedures to document every transaction they made throughout the year, including details on the transaction costs, cost basis, and proceeds. It’s also essential to distinguish between types of transactions, like non-taxable transfers between wallets and taxable disposals.

Calculate an accurate cost basis

Your cost basis is the amount you originally paid to acquire the asset, including any transaction fees. To determine your taxable gain or loss, subtract your cost basis from the proceeds at the time of disposal. The standard method the IRS uses to calculate cost basis is first in, first out (FIFO), which uses the price you paid for the oldest transaction in that digital asset as the cost basis for your disposal.

Let’s say you bought 0.5 Bitcoin (BTC) for $15,000 in January and another 0.5 Bitcoin for $25,000 in June. If you sold 0.5 Bitcoin for $35,000 in August, your FIFO cost basis would be $15,000.

Factor in transaction fees

Be sure to include all transaction fees before calculating your final proceeds. To continue our example, assume you paid $15 in fees to buy 0.5 Bitcoin and another $20 to sell it at $35,000. With these fees, your cost basis rises to $15,015, while your final sale drops to $34,980. With these adjusted values, you can calculate your capital gains:

$34,980 - $15,015 = $19,965

Consult a tax professional

Although it’s not required to work with a professional accountant to file cryptocurrency taxes, consulting one can help you navigate more complex crypto activity. A CPA knowledgeable about crypto will understand the latest legal policies on digital asset reporting, as well as the nuances of specialized activities that will help you report more accurately and potentially take advantage of cost savings.

Use crypto tax software

Crypto tax solutions like CoinTracker can reduce your stress during tax season. By integrating directly with your exchange APIs and wallet addresses, CoinTracker can stay up-to-date with crypto transactions as they happen for comprehensive, real-time portfolio tracking. Our software will capture every transaction cost and gas fee and incorporate it for accurate tax reporting.

Optimize your tax strategy with CoinTracker

Crypto trading fees don’t count as tax deductions, but that doesn’t mean you shouldn’t keep track of them. Crypto trading fees will affect your cost basis and the final sale prices of your digital assets, so even though crypto trading fees aren’t deductible, they can reduce your tax burden each year. Plus, with tools like CoinTracker’s Portfolio Tracker, it’s easy to automatically include trading fee details in official documents while maintaining IRS compliance.

Tax time is approaching – are you prepared? Let us simplify your crypto tax journey. Create a free CoinTracker account and let our platform handle the complexities.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.