If you’re involved in the world of cryptocurrency, you’ve likely explored topics such as a crypto tax calculator, safely storing your cryptocurrency, finding a cryptocurrency accountant, etc. When it comes to storing and transferring your investments, do you know whether you need to pay taxes on wallet-to-wallet transfers?

It’s not uncommon for crypto investors to transfer their coins across exchanges and wallets. In certain situations, these transfers can result in tax reporting issues of which you should be aware. Our team at Founder’s CPA can break down what you need to know about these transfers and how to avoid tax-related issues in the future.

Understanding Cryptocurrency Taxes

Before we dive in, let’s start with the basics on cryptocurrency taxes. When you dispose of your crypto, such as if you sell it, trade it, or use it to make a purchase, you’re responsible for paying a capital gains tax. On the other hand, when you earn cryptocurrency, you recognize it as ordinary income. This includes airdrops, mining, and staking. 

What About Moving Crypto Between Wallets?

If you didn’t already know, when you move cryptocurrency between wallets that you own, this isn’t considered to be a taxable event. In this case, your cost basis and your holding period don’t change when completing a wallet-to-wallet transfer. The original cost that you incurred when acquiring your cryptocurrency will be your cost basis, and the same is true for your holding period. However, make sure to keep accurate records of your transactions to avoid tax issues. 

Understanding Crypto Transfer Fees & Tax Deductions

In some cases, fees can be added to your cost basis which minimizes your capital gains tax. If your transaction meets one of the two conditions, you’ll usually be able to apply expenses to the cost basis of the property:

  • It’s a necessary part of buying or selling the property
  • It increases the overall value of the property

Because the IRS hasn’t gotten specific about wallet-to-wallet transfers, you can take various approaches when reporting wallet-to-wallet transfer fees. Conservatively, it’s best to treat all wallet-to-wallet transfers as non-taxable as they’re not directly tied to buying or selling your crypto. 

Crypto-to-Crypto Transactions

Separate from between-wallet transfers is crypto-to-crypto transactions. This means that one cryptocurrency such as Bitcoin is traded for another such as Ethereum. Depending on how your value has changed since you originally received them, you’ll need to pay either a capital gain or loss. Having a crypto tax calculator can significantly help ensure that your transactions are taxed in the right way, helping to keep your costs accurate and allowing you to submit your tax return with confidence. 

Avoid Potential Issues with Founder’s CPA

Wallet-to-wallet crypto transfers can be tricky and cause tax issues when not handled properly. One of the best ways to avoid these frustrating issues is by working with a crypto tax accountant who knows the ins and outs of the law. Our experienced team is happy to assist you with all of your crypto tax needs this tax season and beyond. Take advantage of our free consultations today!

Curt Mastio
Post by Curt Mastio
November 22, 2023
Curt Mastio started Founder’s CPA in 2017 and currently serves as the Managing Partner of the firm. After obtaining both his Bachelor’s and Master’s degrees in accounting from the University of Illinois in Urbana-Champaign Curt started his career in Big Four public accounting. Shortly thereafter Curt served as the Chief Financial Officer of Storage Squad began his stint as an Adjunct Instructor at Northwestern University’s Farley Center for Entrepreneurship and has been teaching Accounting & Finance to undergraduate students for 6+ years. In his current role Curt oversees strategy, operations, and business development at Founder’s CPA. Further, Curt has experience working directly with 200+ startups and small businesses providing accounting, tax, and outsourced CFO services. His industry expertise lies in the SaaS, Blockchain, Marketplace, and Fintech industries. He has served as a key advisor working directly with startups that range from pre-revenue to companies generating over $30 million dollars a year in revenue. Lastly, he serves a key role working directly with the firm’s clients that have collectively raised over $200 million in venture capital funding to date. Curt is also an active advisor, mentor, and investor in the startup ecosystem. He has facilitated numerous workshops, webinars, and presentations to incubators and other startup-centric organizations. He is also an active mentor for Techstars in both Chicago and Iowa. Outside of his daily professional duties Curt is actively involved with Beat the Streets Chicago and was a founding member of its Young Professionals Board. His efforts in both leadership and community involvement were recognized when he was awarded the Illinois CPA Society’s Outstanding Young Professional Leadership Award in 2020. He was also a panelist at their annual conference in 2022 where he spoke about his experiences starting and operating a public accounting firm. He maintains an active Certified Public Accountant designation that he obtained in 2014. Outside of work, Curt can be found spending time with his friends & family including his dog Rufus. His hobbies include golf, boating, cooking, reading, and attending sporting events & concerts.