Understanding The Hidden Costs Of Crypto

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You can make a lot of money when investing in crypto. However, you need to be aware of the various fees that are involved when buying and selling a cryptocurrency. These fees can catch many investors out and negatively affect your returns – especially those investing small amounts of crypto. In some cases, there are ways to lower these fees. This guide briefly explains the type of fees you need to be aware of. 

Tax

Any income that you make off of cryptocurrency is taxable. Like gold and real estate, you only have to pay tax when you sell. This is paid as part of your annual tax return. 

Some crypto fees such as exchange fees (these are discussed below).are tax deductible allowing you to save some money on tax. If you’re selling lots of crypto using lots of different exchanges, you may find that it benefits you to hire a crypto tax CPA who can ensure that you’re deducting all the right expenses and make sure you’re paying the right amount of tax.

Network fees

Network fees are fees that are paid every time you make a transaction using cryptocurrency. These fees are paid to cryptocurrency miners, helping to keep these cryptocurrencies alive by paying for the energy required to mine them.

Network fees can vary a lot depending on various factors such as the cryptocurrency you’re buying/selling and the amount of transactions being made (during busy periods you could find that network fees are very high).

Some cryptocurrencies such as Ethereum have set fees (referred to as ‘gas fees’) which are much easier to budget for. It’s customary to pay a tip on top of these fees.

It’s worth reading this guide to network fees to get a better idea of exactly how they work and how to budget for them. 

Exchange fees

On top of network fees, you should consider exchange fees. These are charged when using a cryptocurrency exchange.

Exchanges tend to have set fees, making it easier to budget for these costs. Different exchanges will charge different fees – it’s worth looking out for those with the lowest fees if you want to save money (especially if you’re only trading small amounts of crypto). This post lists some of the exchanges with the lowest fees

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