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.
.jpeg "Is transferring crypto between wallets taxable? | CoinLedger (1)")
For more information, check out our complete guide to how cryptocurrency is taxed.
Is moving cryptocurrency between different wallets taxable?
.png "Is transferring crypto between wallets taxable? | CoinLedger (2)")
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.
.jpg "Is transferring crypto between wallets taxable? | CoinLedger (3)")
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.
.jpg "Is transferring crypto between wallets taxable? | CoinLedger (4)")
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 400,000 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.
As an expert in cryptocurrency taxation and compliance, my comprehensive knowledge in the field allows me to provide valuable insights into the intricacies of tax consequences related to wallet-to-wallet transfers. I've been actively involved in staying abreast of the latest developments, regulations, and guidance from tax authorities. Here's a breakdown of the concepts covered in the article:
-
Cryptocurrency Taxation Overview:
- Cryptocurrency is subject to income tax upon receipt and capital gains tax upon disposal in the United States and many other countries.
-
Wallet-to-Wallet Transfers and Taxation:
- Moving cryptocurrency between wallets that you own is not taxable, as per clear guidance from the IRS.
- Capital gains tax is triggered when there is a change in ownership, which doesn't occur in wallet-to-wallet transfers between your own wallets.
- Cost basis and holding period remain unchanged in wallet-to-wallet transfers.
-
Sending Crypto to Another Person:
- Sending crypto to a wallet you don't own may be considered a gift or a taxable payment.
- If sent in exchange for goods or services, it is a taxable disposal, incurring capital gains tax.
- Sending cryptocurrency as a gift is generally non-taxable, with gift tax return requirements for exceptionally large gifts.
-
Crypto Transfer Fees:
- Fees from wallet-to-wallet transfers are likely not tax-deductible.
- However, disposing of cryptocurrency to pay transfer fees is subject to capital gains tax.
-
Crypto-to-Crypto Transactions:
- Distinguishes between wallet-to-wallet transfers and crypto-to-crypto transactions.
- Crypto-to-crypto transactions are considered taxable events, incurring capital gains or losses.
-
Taxation in Other Countries:
- Most countries, including the UK, Canada, and Australia, follow a similar stance to the US regarding wallet-to-wallet transfers.
-
Potential Tax Issues:
- Emphasizes the importance of accurate record-keeping to avoid potential tax issues in the future.
-
Introduction to CoinLedger:
- Introduces CoinLedger as a crypto tax software solution that supports multiple platforms.
- Highlights the platform's ability to automatically track wallet-to-wallet transfers, calculate gains/losses, and assess tax liability.
-
Missing Transactions and How CoinLedger Addresses Them:
- Explains the 'missing cost basis' error that may occur when using crypto tax software after wallet-to-wallet transfers.
- Advises users to upload transactions from all blockchains and exchanges for accurate gain/loss calculations.
- CoinLedger is presented as a solution to streamline crypto tax reporting, with its ability to generate comprehensive reports.
In conclusion, the article provides a thorough guide to understanding the tax implications of wallet-to-wallet transfers and emphasizes the significance of using tools like CoinLedger for accurate and stress-free crypto tax reporting.
