- ETH has fees have gotten to three figures recently, having a major impact on traders
- ETH gas fees can ruin the profitability of a trade, but they are tax deductible
- Accurate recording is essential to make sure your ETH gas fees go towards lowering your tax bill
Ethereum gas fees are a hot topic at the moment, with even the smallest transaction now costing hundreds of dollars. This puts a great deal of pressure on each trade to be a winning one when there is upwards of $200 in trading fees plus your stake riding on it. However, what many people don’t know is that in many countries trading fees are tax deductible, but it’s imperative that you do it the right way to take advantage.
ETH Gas Fees Can be Offset
The situation regarding cryptocurrency taxes has never been clear, but it has been clarified somewhat in recent years, and it is important to note where ETH gas fees fit into it. Let’s say you buy 500 FCRYPTO tokens at $1 each. Take away $100 in ETH gas fees and you’re already down 1/5 of your investment. However, the token doubles in price and you sell, again incurring the $100 gas fee. This means your 500 FCRYPTO tokens have made $500 profit, minus the $200 in ETH gas fees, leaving you with $300 net profit.
Here’s the kicker though – you will still have to pay tax on the $500 profit you made, not the $300 net profit, because cryptocurrencies are treated as capital assets. The same goes for losses, in that your net loss is the amount considered for tax rather than your total loss with associated fees.
The good news is that it is perfectly legal to offset the associated fees as costs against your gains when it comes to tax time. This will be music to the ears of those who have seen their profits decimated by a high ETH gas fee at the other end.
The critical thing to remember is to retain proof of all the transaction fees you are claiming. The easiest way to do this would be to add a new column to your crypto tax spreadsheet (or equivalent) where you insert the hyperlink for the Etherscan transaction which contains the gas fee, noting the dollar value next to it in the sheet. This way you can quickly calculate your ETH fees and the tax man can easily check that you are telling the truth.
The issue of failed transactions is something of a gray area given that they are not directly related to a successful transaction, but it is worth including the ETH gas fees associated with them anyway, knowing that they may be rejected. These laws apply in the US and the UK, and may well apply to other countries too, but if you can, check with an accountant before submitting your tax return to avoid getting a nasty (and expensive) surprise.