NFTs and cryptocurrency are only growing in popularity as some of the biggest investment trends over the last couple of years are proving to be more viable options for currency. Before considering investing in NFTs or currency, you should learn about the hidden fees to avoid unexpected additional costs.
Like paying for an airline or concert ticket, there are a ton of hidden fees that can add up fast. These different fees can be incurred when trading, buying, transferring, converting to cash, and more.
When getting started with investing in cryptocurrencies or NFTs there are no deposit fees but there is typically a minimum deposit requirement. You won’t be able to deposit funds to start your crypto venture if you don’t meet the deposit requirements.
The fees begin when you buy or sell cryptocurrency on an exchange platform with a trading fee that pays the entity operating the exchange. There are different trading fees depending on the exchange being used, it’s best to compare trading fees before committing to an exchange platform.
It’s also common to pay a selling fee to the selling network that is typically a percentage of your amount that will be directly taken from the amount sold. This is similar to fees paid when buying and selling stocks. There is a selling fee to be paid to the network that is usually charged a percentage of the amount with a fee that will be directly taken from the selling amount.
Another expense to consider is the network fees that pay validators and miners for the service of processing transactions depending on the type of blockchain you’re using. For example, using Bitcoin to buy a physical product can require you to move Bitcoin from your wallet to another wallet and can incur a network fee.
Network fees can vary depending on how many transactions are processed at any given time through the blockchain. In most cases, the network fees tend to be higher with more transactions and can cost less when there are fewer transactions happening at once.
Timing is everything as one of the best options is moving cryptocurrency when there is a lower level of activity. The best times with low values are typically during early mornings on the weekends, Mondays, and Tuesdays. There are online resources to help determine the best times to avoid network fees like http://www.ethereumprice.org/gas.
Withdrawing cryptocurrency often requires, you guessed it, a withdrawal fee. Some networks offer a certain number of free withdrawals per month and in some cases require a minimum withdrawal amount, but you should be mindful of your limit. Each network offers different terms and offers that you should closely consider before committing.
Cryptocurrency is becoming more mainstream and is becoming liable for taxation if crypto investments are profitable. For profitable crypto investments, the tax rate will be determined by how long you’ve owned the cryptocurrency.
Crypto investments that are owned for less than one year, it’s required to pay short-term capital gains tax rate. Cryptocurrency owned longer than one year comes with a long-term capital gains tax rate (lower than a short-term rate).
Determine how much of a profit is made and what kind of capital gains tax rate you’ll be paying before committing to selling cryptocurrency. Financial experts recommend setting aside a portion of the sale in a savings account to be prepared for the upcoming tax season.
You can contact a tax accountant that can help you better determine how much money you should set aside for tax season. You should receive a 1099 form from your trading platform that will list your profits and losses.
You may have to pay capital gains taxes or collectibles taxes if you sold or created any NFTs for profit. The collectible tax rate is considered higher than the capital tax rate but is capped at 28% no matter how long you’ve possessed the NFT. Taxes on crypto investments aren’t required to be paid if you lose money.