PSA: Moving crypto between wallets is not taxable!

Hey everyone! Earlier this week, I made a post on taxes and someone asked me whether transferring crypto between wallets is taxable. I wanted to write up a longer post to explain the tax implications of wallet-to-wallet transfers in the US.

The short answer is that moving crypto between wallets you own is NOT TAXABLE.

However, it’s still important to keep records of your wallet-to-wallet transfers for tax purposes.

Why you should keep records of wallet transfers

Keeping complete records of crypto transactions will make it easier to calculate your capital gains and losses after a wallet-to-wallet transfer.

To better understand why this is important, consider the following scenario.

You buy $10,000 of ETH on Coinbase.

You transfer your crypto to a cold wallet.

You sell $15,000 of ETH on Gemini.

In this case, your capital gain should be $5,000. However, if you haven’t kept records of your capital gains and losses, you’ll be forced to recognize the entire $15,000 proceeds of your sale as a capital gain.

What should I do if I haven’t been keeping records?

If you haven’t been keeping records of your wallet-to-wallet transfers, don’t worry. You can look through your transaction history on your exchanges and wallets to find the price of your crypto at receipt and disposal — this will make it easier to calculate capital gains and losses.

If you’re having trouble with this or you just have a fuckton of transactions, you can use crypto tax software (like CoinLedger, CoinTracker, or whatever other option you choose) to calculate your gains and losses across all your wallets and exchanges.

Hey man, I tried crypto tax software and now I have a missing cost basis error!

Many investors who use multiple wallets get a ‘missing cost basis’ error from their crypto tax platforms.

There are a few different reasons why you might get this error, but usually this happens when you’ve transferred your cryptocurrency between wallets and you haven’t connected all of your wallets and exchanges to the platform!

To calculate your capital gains, the crypto tax software you’re using needs to know your original cost basis for acquiring your crypto. That means you need to add all of your wallets and exchanges to the platform — even exchanges that you haven’t used in years. This way, the platform will have access to your complete transaction history.

TL;DR: Wallet-to-wallet transfers aren’t taxable, but they can fuck up reporting your taxes if you haven’t kept careful records.