Is Transferring Crypto Between Wallets Taxable? [2024]

29 Jan, 2024 · 18 min read

Is transferring crypto between wallets a taxable event in the US? 

Given the security threats in crypto, it’s worthwhile for investors to have different wallets, from hot to cold wallets like Ledger or Trezor. 

For security and diversification purposes, you’ll need to transfer your crypto assets across wallets, which raises doubts about the taxes involved in that transaction.

Let’s cover how crypto is taxed in the US, if transferring crypto between wallets is taxable, and more!

Key Takeaways about the taxation of sending crypto
  • Selling any portion of your crypto holdings is a taxable event in the US, subject to capital gains taxes;

  • Transferring crypto between personal wallets is not taxable in the US;

  • Sending crypto to a wallet that doesn’t belong to you is a gift and not a transfer of crypto;

  • When you convert crypto to another crypto or FIAT, you’d have a taxable event, while simply transferring is not.

How is crypto taxed in the US?

Trading crypto is taxed in the US under capital gains taxes, regardless of whether you trade crypto for another crypto, FIAT, or an NFT.

If you hold crypto for over 12 months before selling it, you’d be taxed at a long-term capital gains tax rate, ranging from 0% to 20%.

If you hold crypto for less than 12 months before selling it, you’d be taxed at a short-term capital gains tax rate, ranging from 10% to 37%.

If you receive any type of crypto income – crypto interest, staking rewards, airdrops, hard forks, crypto salaries – you’d be taxed at an income tax level.

Do I have to report wallet transfers on my tax return?

You don’t have to report wallet transfers on your taxes, only the gains/losses on every crypto trade (crypto sale) you made and all the crypto income that you received during the year.

Each time you sell any crypto, you need to determine the gain/loss on each of those sales and report that individually in the right tax forms, including Form 1040 and Form 8949.

Crypto income needs to be reported as the Fair Market Value (in USD) of every batch of crypto income you received during that tax year.

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Is moving cryptocurrency between different wallets taxable?

Moving cryptocurrency between different wallets is not taxable in the US if those wallets belong to you, while if you sell any of your holdings, you’d have a taxable event.

What if the crypto that you hold has gained in value? Or can you deduct transferring fees?

Let’s look at a scenario that most crypto holders face when transferring crypto between wallets and if it is taxable.

Transferring crypto to your own wallet

Let’s look at a simple situation most crypto holders face when transferring crypto yo your own wallets and its possible taxation.

There’s a lot of confusion on which crypto transactions are taxable or not. For clarification on your tax obligations as a crypto holder, check out our comprehensive guide about which crypto events are taxable.

John buys ETH. Is it taxable?

In December 2020, John bought 10 ETH at $1,000 each. Remember, buying crypto with fiat is not a taxable event, but it opens a new set of requirements that you need to follow on your crypto tax reporting.

John transfers his ETH to a cold wallet

John plans to hold his ETH for two years in a hardware wallet instead of leaving it to the multiple threats that centralized exchange wallets face. Remember, holding crypto is not a taxable event.

To do so, John transfers his 10 ETH from the Coinbase wallet to his newly bought Trezor. The transaction fee is 0.1 ETH ($100). John receives 9.9 ETH in his Trezor wallet.

John sells 2 ETH after two years of holding

In 2021, John will have to report his crypto holdings alongside other requirements, but he will not pay any capital gains tax on his crypto since he is holding.

In December 2022, John transfers back his 9.9ETH to Coinbase, paying a 0.1 ETH transaction fee, which leaves him 9.8 ETH. He sells all his ETH at $2500/ETH for a totale sales proceeds of $24,500 USD. He needs to pay a 0.5% sales commission.

Therefore, the net sales proceeds he receives is $24,500 x (1- 0.5%) = $24,377.50. His basis in the 9.8 ETH is $9,800 (= $1,000 x 9.8), therefore, he needs to recognize a long term capital gain of $14,577.50.

John pays capital gains tax on the profit

In 2023, John will need to pay capital gain taxes on the $14,577.50 profit, but he can still benefit from a long-term rate and save in crypto taxes.

Federal capital gain tax to be paid = ( $24,500 sales proceeds – $122.50 sales commission – $9,800) x 15% (long-term capital gain tax*) = $2,186.63

*Long-term capital gains tax rates range from 0% to 20% in the US. We assume a 15% long-term capital gain tax for simplicity purposes. However, these rates are merely indicative as the real ones will depend on your total taxable income level, filing status (married/single), and other factors as a US taxpayer.

Transferring crypto to someone else’s wallet

If you transfer crypto to someone else’s wallet, it can be one of three cases: 1) You’re gifting crypto to a friend or someone else; 2) You’re donating crypto to a charity; and 3) You’re buying something with crypto and needed to transfer it to someone.

Let’s cover whether those situations are taxable events in the US or not.

When is sending crypto to another person not taxable?

If you send cryptocurrencies (without selling any of them) to someone else (e.g., a friend), you’re essentially gifting crypto to that person.

Gifting crypto is not a taxable event in the US, and you won’t need to do any extra reporting if you don’t surpass the annual gift exclusion amount ($17,000 in 2023). If you surpass that threshold, you’d need to file an annual gift tax return, but the event itself is not taxable.

If you transfer crypto to a charity, you’re donating crypto. Donating crypto is not a taxable event, and you can even get a tax deduction if you donate crypto to a charitable organization. Then, you can claim an itemized tax return and lower your gains with that tax deduction.

When is sending crypto to another person taxable?

If you buy something with crypto and you transfer that crypto in exchange for a product/service, that transfer would be considered a sale (conversion) of that crypto.

You’d need to determine the gain/loss on that crypto based on its holding period and be subject to capital gains taxes depending on that.

So, on top of the amount spent to buy the product/service, you’d probably need to add taxes if you add a gain on that crypto.

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Are crypto transfer fees tax deductible?

There are different types of fees for crypto transactions, and depending on their nature, they can be tax deductible or not. Let’s cover the differences.

Can I deduct fees from wallet-to-wallet transfers?

There are two common types of transaction fees: (1) Network fees for transfering a coin from one wallet/exchange to another wallet/exchange; and (2) sales commission for a crypto transaction (buy or sell).

Under the current US tax law, fees related to the transfer of a coin from one place to another is considered investment expense and it is no longer tax deductible for individual investors. Even if transferring Bitcoin between wallets is not taxable, you still have expenses concerning fees.

Are crypto-to-crypto transactions taxable?

Trading cryptocurrencies for other cryptocurrencies is a taxable event in the US since it is a disposal of your assets while transferring between wallets is simply moving assets from one location to another.

Crypto-to-crypto trades are taxable events, subject to capital gains taxes depending on the holding period of that crypto. If you held that for over 12 months before selling it, you’d be taxed at a long-term capital gains tax rate, ranging from 0% to 20%, whereas if you held it for less than 12 months, you’d be taxed at a short-term capital gains tax rate, ranging from 10% to 37%.

Tracking gains from crypto-to-crypto trades is more complicated than with crypto-to-FIAT because you’re trading all in a crypto environment, but you need to determine the gain/loss in FIAT (e.g., USD). The best way to automatically determine this is with crypto tax software.

Why wallet-to-wallet transfers can cause tax issues in the US

You cannot confuse transferring crypto between wallets and selling/converting any of your assets for other assets. However, if you transfer crypto a lot between wallets, you may have to pay a lot of fees on those transfers and may be able to get a deduction.

However, you have to fit some requirements and keep proper track of those transfers.

Good practices for record keeping for wallet transfers

The easiest way to track your wallet transfers and the fees you’ve paid for each transaction is by frequently importing your transactions with the help of a crypto tax tool.

With CoinTracking, you can import transactions from hundreds of options, from crypto exchanges to wallets and blockchains, enabling you to be on top of all your trades.

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Is moving crypto taxable in other countries?

 In most countries, transferring crypto between wallets is not taxable since you’re not disposing of your assets. In scenarios where you’re disposing of assets, like converting them into another asset or spending it to buy a product/service, you’d be taxed.

Taxes on sending crypto to another wallet in other countries

Canada

In Canada, you can transfer crypto between wallets without having a taxable event. Read more about how Canada taxes crypto transactions.

Australia

You can transfer your crypto holdings between personal wallets without being taxed on them, but you’d have to pay taxes on the fees you pay to transfer crypto. Discover more in our Australia crypto tax guide.

UK

The United Kingdom does not tax when you transfer cryptocurrencies between personal wallets. However, the UK taxes crypto trading and income-earning activities. Discover more about crypto taxes in the UK.

FAQ about the impact of
sending Crypto to another Wallet

How much crypto can you send without paying taxes?2023-12-26T16:29:40+01:00

You can transfer as much crypto as you want between personal wallets, while you can send crypto of any value to a friend as a gift, but you’d need to file a gift tax return if that surpasses $17,000 in 2023.

Why am I missing transactions on my tax return after a wallet-to-wallet transfer?2023-12-26T16:27:38+01:00

You do not need to report any transfer of crypto between personal wallets in your tax return, but you need to report gains/losses from crypto trading and crypto income.

Is sending Bitcoin to another wallet taxable?2023-12-26T16:25:50+01:00

Sending Bitcoin or another cryptocurrency to another wallet (hot or cold) is not a taxable event in the US.

Is sending crypto to another wallet taxable?2023-12-26T16:24:52+01:00

Sending crypto to other wallets that belong to you is not a taxable event in the US.

Do crypto wallets report to the IRS?2023-12-26T16:24:09+01:00

With new laws in place, crypto brokers like exchanges must share customer information if they are summoned by tax authorities like the IRS.

Conclusion

Transferring crypto between wallets is not a taxable event, while you need to file a gift tax return if your crypto gift is over the annual exclusion amount.

However, when you trade crypto, meaning if you sell any of your crypto holdings, you’d need to report the gain/loss on each trade and all the income from crypto-earning activities (e.g., crypto interest, staking rewards, airdrops, hard forks).

You need to keep accurate track of the different types of transactions you incur during the tax year and file the appropriate information in the right tax forms, with CoinTracking being the easiest solution to do so.

*This post is part of the Crypto Taxes AMA series where our expert CPA, Sharon Yip answers your crypto tax questions.

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Moritz Nold: Crypto Tax Manager
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Moritz
Crypto Tax Manager
Tax Expert, Webinar-Host, Content Creator, Crypto Enthusiast and Investor. Interested in everything regarding the crypto space.
Tax Expert, Webinar-Host, Content Creator, Crypto Enthusiast and Investor. Interested in everything regarding the crypto space.

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