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If you make a 2.5% capital gain on Dogecoin, but then pay that same amount in transaction fees, do you still have to pay capital gains tax?

Or can the capital gains be offset with the loss incurred from the exchange's transaction fee?

Edit: Answers for any jurisdiction is good, EU, US, etc.

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This highly depends on the country where you live, but usually the idea is that any fees directly related to obtaining income can be subtracted from it, and any tax-like fees already paid can be subtracted from the final taxes.

Examples that are applicable for Finnish tax laws (and probably in many other countries too):

Subtracting from taxable income:

  • You have to pay your broker 50 euros per year for having a stock account. You can subtract this from your taxable income.
  • You paid 200 euros + 8 euros of trading fees for buying a stock and got 300 euros - 8 euros of trading fees for selling a stock. The taxable income is not 100 euros but 84 euros since you subtract the 8 euros twice.
  • You got a loan of 10 000 euros to invest into stocks. The interest is 3% * 10 000 euros = 300 euros. You can subtract this 300 euros from your taxable income.

Subtracting from taxes:

  • You had to pay 0.90 euros from 6 euros of dividends to the source country from which you obtained those dividends (withholding 15%). Usually you'd pay 0.255 * 6 = 1.53 euros of dividend tax, but now you only pay 0.63 euros of dividend tax to Finland since 0.90 euro was paid to the source country.

But however:

  • The tax agreement between Finland and Country X says 15% of dividends will be paid to the source country. You got 6 euros of dividends from Country X so according to the agreement, 0.90 euros should be paid to the source country. The source country withheld 1.20 euros contrary to the agreement. Usually you'd pay 0.255 * 6 = 1.53 euros of dividends taxes to Finland, but you now can't subtract 1.20 euros from your taxes but rather can only subtract 0.90 euros from your taxes. So you pay 0.63 euros to Finland. The missing 0.30 euros is your loss, thanks to the source country who broke the tax agreement and withheld too much money. You may be able to retrieve this back by filing a claim in the source country, but usually it's not worth the effort to try to do lots of work to retrieve the missing 0.30 euros.
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    To be clear: at least in US, if you buy a security for 200 +8fee and sell that same security for 300 -8fee you have a taxable capital gain of (300-8)-(200+8)=84. But if you buy A and sell a different security B which you already owned, the capital gain on B is computed using its purchase cost from some past year, and the purchase cost of A doesn't affect tax (yet). Aug 4 at 1:38
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The IRS in Notice 2014-21 declared

For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

In effect, the same as stock purchases and sales, i.e. short vs long term cap gain treatment, as well as netting out commission for transactions.

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  • Are transaction fees considered "commission for transactions"? Aug 1 at 13:53
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    I would say so. Yes. You net gain from all cost of ownership. Aug 1 at 13:54

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