bitcoin tax question

[joesxm3]

I am still educating myself about the crypto asset class and have gotten to the point of wondering about paying taxes. I tried to search things out but did not get any clear understanding of one topic.

The topic is how the so-called gas or miner fee from transferring to and from a private wallet affects the tax calculation and reporting.

I found a list of events that trigger or do not trigger a taxable event. It said that paying for a good or service using BTC was a taxable event. It said that moving BTC from one wallet to another was not a taxable event.

It all seems straightforward until you try to decide if the money you pay to entice miners to put your transaction on the blockchain is paying for a service or not.

At this point, I am thinking that the miner fee is similar to the fee you pay when purchasing the BTC, i.e. a brokerage-type fee.

Here is an example. Note that the numbers are not realistic.

You buy 1 BTC for $100 and pay a $1 fee to Coinbase.

You now have 1 BTC with a basis of $101.

You transfer your 0.9 BTC to your hardware wallet and Coinbase adds a 0.1 BTC miner fee to the transaction. Assume the value of 1 BTC is still $100.

Your Coinbase wallet is empty. Your hardware wallet now has 0.9 BTC.

Ignoring the second miner fee for sending the BTC back to Coinbase, let's say you send it up and sell it.

You are now selling 0.9 BTC.

Is the primary basis still $101?

Is the basis now $90.90 with the 0.1 BTC fee having a basis of $10.10? If so, it would seem that you would report the miner fee as a taxable event.

If not, does the miner fee that was paid get added to the basis (at the market price at the time of the send)?

I am sorry if I am getting a little confusing here, but I hope you can see what is confusing me.

It seems that it would have been a lot easier if Coinbase were to calculate the miner fee in USD and subtract it from the USD part of your account. In that case, it would seem to be as simple as still having 1 BTC and increasing the basis by the USD value of the miner fee (paid from your other funds).

Thanks in advance for any thoughts.

Joe

 

[Running_Man]

The transferring between wallets does not create a taxable event, however the transaction, or as you say miner fees are considered investment expense and are not deductible and not eligible to add to the basis. Your basis is still $100. Some people claim the fee paid to purchase bitcoin, the original $1 fee is eligible to be added to the basis as a commission is on stock purchases. But the fees for transfering between wallets are not deductible and the transfers are not a taxable event.

You at the end have 0.9 BTC with a basis of $100 or $101 depending on the stance you take and Coinbase will give you a reporting basis on that and I'd go by what they would say.

 

[Dash man]

It’s my understanding that Coinbase and other exchanges will send 1099s for gains/losses and interest. Other fees involved with trades should be deductible as investment expenses. Fees for purchases or transfer of funds I wouldn’t think would be deductible, just as fees for wiring money to credit card fees aren’t deductible unless it’s for a business.

 

[Running_Man]

It’s my understanding that Coinbase and other exchanges will send 1099s for gains/losses and interest. Other fees involved with trades should be deductible as investment expenses. Fees for purchases or transfer of funds I wouldn’t think would be deductible, just as fees for wiring money to credit card fees aren’t deductible unless it’s for a business.

Investment fees are only deductible subject to a 2% floor of AGI, so with a 100K income the first 2K of fees are none deductible.

 

[joesxm3]

Thanks. That clears things up a bit.

After writing the post, I realized that I had a slight error in my example.

The more realistic example would be that you have 2 BTC in your account and transfer 1 BTC to the wallet. The miner fee would be subtracted from your Coinbase wallet and not from the amount being transferred to the private wallet.

So after the transaction you would have 0.9 BTC in your Coinbase wallet and 1 BTC in your private wallet.

Looking at it like that is more in line with the way you explained it. The BTC subtracted from the Coinbase wallet is just a cost of doing business and not taxable or basis.

I suppose the way one would handle this in real life would be to have a little extra in each wallet to use to pay miner fees and just never let that little bit get to the point where it is involved in a taxable event.

Fixing the mistake in my example where the 1 BTC changed to 0.9 BTC sending to the wallet keeps things in order, so the 1 BTC with the $101 basis just moves and the miner fees are paid out of a "separate sub account". If I sell the 1 BTC, the capital gain reporting is just like a normal stock transaction.

Thanks again. I will be able to sleep tonight without thinking about this.

 

[Onward]

From 2018-2025 investment fees are not deductible at all on your federal tax return.

 

[Dash man]

From 2018-2025 investment fees are not deductible at all on your federal tax return.

Well, the bright side is taxes will be easier to calculate!