If you are involved with cryptocurrency, you are probably all too familiar with gas fees. Payment in Ethereum gas fees are required for a variety of transactions that take place on the Ethereum blockchain including staking, airdrops, transfers, trades, yield farming and so on.
In many circumstances, these fees can be deductible for taxes but whether or not these fees will be deductible in your specific scenario will depends on the nature of your transactions and operations. Fees from other blockchains such on Avalanche, Solana, and so on will most likely be treated in the same manner.
The overall tax treatment of fees have not been specially addressed by the IRS. Taxpayers should rely on existing tax laws and take a conservative approach in how they treat fees for tax purposes. Generally, individuals will not be able to deduct fees against income but they will still offer a tax benefit in many scenarios. Business entities, in many circumstances, will be able to deduct fees as a business expense.
Gas fees incurred when you are trading one asset for another will be deductible for tax purposes. Any fees incurred when trading an asset will be added to the cost basis of the asset you are acquiring. This will lower your overall taxes in the future when you sell this asset.
Staking, Airdrops, Yield Farming
When you claim airdrops, staking rewards or yield farming rewards you will incur a gas fee. Any fees incurred when trading an asset will be added to the cost basis of the asset you are acquiring. This will lower your overall taxes in the future when you sell this asset.
When you transfer assets, you will incur a gas fee. Unfortunately, these fees will not be tax deductible and the ETH that you spend for the fees will be treated as taxable sales.
Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transactions. It is important to consult with an experienced cryptocurrency CPA regarding your specific portfolio and/or business.
Here at Camuso CPA, we offer cryptocurrency tax services nationwide. Our team is highly experienced in cryptocurrency as one of the first CPA firms working in the space since 2016. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.