Wondering whether you need to pay taxes on your wallet-to-wallet crypto transfers?
In this guide, we’ll break down everything you need to know about the tax consequences of wallet-to-wallet transfers (and share an easy way to avoid tax issues down the road).
How is cryptocurrency taxed?
In the United States and most other countries, cryptocurrency is subject to income tax upon receipt and capital gains tax upon disposal.
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For more information, check out our complete guide to how cryptocurrency is taxed.
Is moving cryptocurrency between different wallets taxable?
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Moving cryptocurrency between wallets that you own is not taxable. The IRS has released clear guidance on this matter.
Typically, cryptocurrency disposals — situations where the ownership of your crypto changes — are subject to capital gains tax. After you dispose of your cryptocurrency, you’ll incur a capital gain or loss depending on how the price of your crypto changed since you originally received it.
In cases where you move cryptocurrency between wallets you own, there is no change in ownership. As a result, capital gains tax is not triggered.
In addition, your cost basis and holding period do not change when you do a wallet-to-wallet transfer. Your cost basis will be your original cost for acquiring your cryptocurrency. Your holding period will be whenever you first acquired your coins.
Still, it’s important to remember that moving your cryptocurrency between different wallets can lead to potential tax issues if you haven’t kept accurate records of your transactions (more on this later).
Is sending crypto to another person taxable?
If you send crypto to a wallet that you do not own, it may be considered a gift or a taxable payment — depending on whether you received anything in return for your transfer.
When is sending crypto to another person taxable?
If you send cryptocurrency to another person in exchange for goods or services, it will be considered a taxable disposal. You’ll incur a capital gain or loss depending on how the price of your crypto changed since you originally received it.
When is sending crypto to another person not taxable?
Sending cryptocurrency as a gift is non-taxable for all but the most generous gift givers.
While you may need to fill out a gift tax return if the value of your gift exceeds $16,000, this form is primarily for informational purposes. You won’t be required to pay tax unless you gift more than $12.92 million during your lifetime.
Are crypto transfer fees tax deductible?
Summary: Fees from wallet-to-wallet transfers are likely not tax deductible. However, disposing of your cryptocurrency to pay transfer fees is subject to tax.
Can I deduct fees from wallet-to-wallet transfers?
Cryptocurrency fees can be added to your cost basis in some circ*mstances, which can reduce your capital gains tax.
Typically, you can apply expenses to the cost basis of the property if your transaction meets one of the following conditions.
- It is a necessary part of buying or selling the property.
- It increases the underlying value of the property.
It’s unlikely that transfer fees from cryptocurrency meet these conditions in most cases. As a result, the conservative approach is to treat wallet-to-wallet transfers as non-deductible since they are not directly related to buying/selling your crypto.
Are wallet-to-wallet transfer fees taxable?
While moving crypto from one wallet to another is not taxable, relevant fees may be subject to tax.
Disposing of your crypto to pay fees in a wallet-to-wallet transfer is subject to capital gains tax. You’ll incur a capital gain or loss depending on how the price of your crypto changed since you originally received it.
Are crypto-to-crypto transactions taxable?
Moving your cryptocurrency between wallets should not be confused with crypto-to-crypto transactions, where one cryptocurrency is traded for another. Unlike wallet-to-wallet transfers, crypto-to-crypto transactions are considered taxable.
Because you are disposing of cryptocurrency in a crypto-to-crypto trade, you will incur a capital gain or loss depending on how the value of your coins has changed since you originally received them.
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Is moving crypto taxable in other countries?
Most countries take a similar stance to the US when it comes to taxing wallet-to-wallet transfers. Transferring crypto between wallets you own is not considered taxable in the UK, Canada, or Australia.
Why wallet-to-wallet transfers can cause tax issues
While wallet-to-wallet transfers aren’t taxable, they can cause tax issues if you dispose of your cryptocurrency in the future.
Consider the following scenario.
In this case, David’s capital gain should be $5,000. However, Exchange B doesn’t know David’s original cost basis. If David hasn’t kept accurate records on his original purchase, the entire $15,000 of proceeds ccould be considered a capital gain.
To avoid situations like these, it’s important to keep careful records of your cryptocurrency transactions — including the date and time you received and disposed of them as well as the price of your crypto at receipt and disposal.
If you need help tracking your cryptocurrency transactions, crypto tax software like CoinLedger can help. The platform is designed to make it easier than ever for you to generate a complete crypto tax report — no matter how many wallets and exchanges you’re using!
How does CoinLedger deal with wallet-to-wallet transfers?
CoinLedger supports hundreds of cryptocurrency platforms — including exchanges like Coinbase and wallets like MetaMask.
If you’ve connected all the platforms you’re using, CoinLedger will automatically track all of your wallet-to-wallet transfers — including information like cost basis! If you dispose of your cryptocurrency in the future, the platform will calculate your gain/loss and the associated tax liability.
Why am I missing transactions on my tax return after a wallet-to-wallet transfer?
If you’ve transferred your cryptocurrency between wallets, you may get a ‘missing cost basis’ error while using crypto tax software.
Typically, this error occurs if you haven’t uploaded transactions from all of your blockchains and exchanges — including those you didn’t use in the past calendar year.
Remember, the platform will need your original cost basis for all of your units of cryptocurrency to accurately calculate gains and losses. To make sure your crypto tax software has all the relevant information, you may need to upload transactions from years prior.
How CoinLedger can help
Looking to file your crypto taxes? Try CoinLedger, the platform that makes crypto tax reporting stress-free.
CoinLedger serves more than 500,000 crypto investors across the globe. With integrations with hundreds of exchanges and blockchains, you can generate a comprehensive tax report in just minutes!
Get started with a free CoinLedger account today.
