As a cryptocurrency investor, there’s a lot to pay attention to. What’s the price of Bitcoin today? How is changing technology going to affect prices? How are fees changing across cryptocurrency exchanges?
One of the ways you can more successfully invest in cryptocurrency is to find ways to cut down your costs. Here are 4 tips for maximizing your returns:
#1 Record Wallet Transfer Fees
Wallet transfer fees are annoying, but if you have to pay them, make sure you keep track of them. You can use these expenses later to cut your tax bill when you sell cryptocurrency. Keep in mind that any time you sell Bitcoin or another cryptocurrency at a gain, that becomes taxable income. But you can reduce that taxable income by claiming expenses, including wallet transfer fees and many of the other fees involved in buying and selling cryptocurrency.
#2 Don’t Pay Transfer Fees at All
Cryptocurrency exchanges charge fees for a number of transactions in order to fund themselves. Wallet transfer fees are common, but one of the more annoying ways exchanges can make money. After all, you already own the coins.
Cryptocurrency exchanges like Bitbuy operate without charging withdrawal fees on cryptocurrency. There are small fees when you buy and sell Bitcoin and when you withdraw or deposit fiat currency, but you don’t have to pay extra to move cryptocurrency from the exchange wallet to your own hot or cold wallet. If fee-less transferring is important to you, know that you can trade Bitcoin, Ethereum, Litecoin, and Bitcoin Cash on Bitbuy.
The platform is also known for charging some of the lowest fees in Canada, a country which struggles with provincial (rather than federal) regulation and platforms with high fees.
#3 Don’t Invest Crypto Profits into Another Crypto Right Away
When you sell cryptocurrency at a gain, set that money aside in dollars rather than trading it for another cryptocurrency. That’s because most revenue agencies will calculate your gains in terms of the second cryptocurrency’s value when you made the trade. Since the IRS doesn’t take cryptocurrency, you have to pay in fiat currency and you could stand to lose money.
Here’s how you could wind up on the hook for money you don’t have:
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You bought one Bitcoin at $500 years ago. You sell at $3,500, netting you $3,000 in gains. Half of that ($1,500) will be added to your income and taxed.
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If, instead of trading Bitcoin for fiat currency, you turn your $3,500 into Litecoin at $35 per coin, revenue agencies would still say you gained $3,000 and would tax you on $1,500.
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Next year, Litecoin prices crash from $35 to $10. Now you’ve lost $2,500, but you have to pay last year’s tax bill, and as far as the tax collector is concerned, you’re up $1,500 from the trade.
#4 HODL (Invest Long-Term)
You can reduce your capital gains taxes by holding onto your cryptocurrency investment for longer than a year. Typically, tax rates are lower for capital gains when you’ve been a long-term investor. While there are many ways to buy Bitcoin, buying and holding is one of the most effective ways to reduce your tax bill on gains. The IRS typically rewards long-term commitment by reducing taxes on investments held for more than one year.
Always make sure you’re watching your costs and finding ways to cut them when you’re trading Bitcoin and other cryptocurrencies.