Is this bitcoin trading fee a deductible expense on my taxes?

Bitcoin trading fees aren't a separate deduction, but they do adjust your cost basis. When you sell crypto, the fees you paid can be added to your cost basis (what you paid to acquire the Bitcoin) or subtracted from your proceeds (what you received from selling), which effectively reduces your capital gain. For example, if you bought Bitcoin for $10,000 and paid a $100 fee, your actual cost basis would be $10,100. When you sell, if you get $15,000 but pay a $150 fee, your net proceeds are $14,850. So your gain would be $14,850 - $10,100 = $4,750 instead of $5,000. This isn't technically a "deduction" like on Schedule A, but rather an adjustment to your capital gain calculation on Schedule D and Form 8949. Make sure you keep good records of all these fees!

I was in the exact same situation last year trying to figure out crypto fees. I found this amazing tool called taxr.ai (https://taxr.ai) that saved me so much headache with my crypto taxes. I uploaded my trading history and it automatically calculated all my gains with the fees properly factored in. The tool identified which fees should offset gains and which ones couldn't be included. Their system understood exactly how to handle the bitcoin transaction fees properly according to IRS rules, which was a relief since Publication 529 is super vague about crypto stuff. It even generated the proper 8949 forms with all transactions listed correctly.

Just wanted to update after trying taxr.ai that the previous commenter recommended. It actually worked perfectly for my situation with multiple exchanges! I had been recording my crypto transactions manually in a spreadsheet and miscalculating my basis because I wasn't handling the fees properly. The tool showed me I'd been overpaying taxes for the last two years because I wasn't including all eligible transaction fees in my cost basis calculations. It even helped me identify that I should file an amended return for last year, which is getting me about $730 back. Definitely worth checking out if you're dealing with crypto taxes.

If you're having trouble getting a straight answer from the IRS about crypto fees, you're not alone. I spent WEEKS trying to call the IRS to get clarification about this exact issue. Their phone lines were constantly busy, and I was put on hold for hours only to be disconnected. Finally found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent within 30 minutes. They have this crazy system that navigates the IRS phone tree and holds your place in line, then calls you when an agent is actually available. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that crypto trading fees should reduce your capital gains (exactly like the first commenter said), but they aren't separately deductible items. She also pointed me to some specific guidance they have for crypto transactions that wasn't in Publication 529.

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway out of desperation. I've been trying to get through to the IRS for THREE MONTHS about my crypto tax questions. Used the service yesterday and got connected to an IRS agent in about 45 minutes. The agent confirmed exactly what everyone here is saying - crypto trading fees aren't separate deductions but should be factored into your cost basis or proceeds. He also emailed me some documentation specific to crypto reporting that I hadn't been able to find online. If you're dealing with crypto tax questions and getting nowhere with the IRS website or publications, definitely worth getting actual confirmation from an agent. Saved me from potentially making an expensive mistake on my return.

One thing nobody mentioned - if you're mining bitcoin rather than just trading it, the rules are completely different. Mining expenses can often be deducted as business expenses if you're treating your mining as a business. But trading fees are definitely just adjustments to your basis, not separate deductions.

Has anyone used TurboTax for reporting crypto with all these fee adjustments? Their crypto section confused me last year.

I had the exact same confusion about bitcoin trading fees last year! After going through this myself, I can confirm what others have said - these fees definitely adjust your capital gains but aren't separate deductions. What really helped me was creating a simple spreadsheet to track everything. For each bitcoin sale, I had columns for: original purchase price, purchase fees, sale price, sale fees, and adjusted gain/loss. The formula was basically: (Sale Price - Sale Fees) - (Purchase Price + Purchase Fees) = Actual Gain/Loss. So for your $1,275 in fees, make sure you're adding purchase fees to your cost basis and subtracting sale fees from your proceeds before calculating gains. This will naturally reduce your taxable gains without needing to claim them as a separate deduction anywhere. Keep all your exchange statements showing these fees - the IRS loves documentation for crypto transactions. Good luck with your filing!