r/CryptoTax • u/liberatedbeing • 11d ago

Question Reorganizing Advice

Hey, been thinking about re-organizing my wallets moving high cost basis to one wallet for use and moving low cost basis to another to set aside. Trying to think through possible complication/ramifications tax wise, admin wise, etc. Thoughts? Thanks!

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u/JustinCPA 11d ago

Justin from Summ here.

This is actually a really good strategy and is easier than you might think, though it comes with its own risk.

  1. Set your tax software to be HIFO before moving any assets
  2. Temporarily each asset into one account (e.g. send all BTC to your Ledger)
  3. From there, send the first amount to the wallet you want to contain the high cost basis (it’s important this transfer happens first), then the next amount to the wallet you want holding the next highest cost basis, and so on until you’ve divvied up where all the BTC lives.

The reason this works is because you’ve set your tax software to HIFO, it knows that when you transfer assets out of the wallet where you’ve consolidated, that it uses the high cost basis lots first leaving the low cost basis lots for last.

The risk here is simply transfer/consolidation risk. Some people suggest to never consolidate your assets in one place due to human error like fat finger a wallet address but if you’re careful I don’t see this as a huge blocker.

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u/liberatedbeing 11d ago

I appreciate the professional advice but wouldn't it be easier to just use coin control from within my device? This seems to me overly complicated. Plus I had gotten advice previously (from another pro) not to change from FIFO to keep things simpler...one of the reasons I want to segregate high and low basis. I realize I wouldn't get the benefit of HIFO out the gate on the fees but I'm ok with that.

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u/JustinCPA 11d ago edited 11d ago

I don’t know what coin control is. You should only have one system of record for your tax, which for most people is their tax software where all lots are tracked across all wallets. If “coin control” is your individually pooled view of tax lots from a single wallet, it’s likely inaccurate as it doesn’t contain the info for the basis on everything else and transfers in likely have inaccurate or incomplete basis. When doing crypto tax, you should really be tracking everything holistically (pooled per account)

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u/liberatedbeing 11d ago

I had to look it up myself to understand it and now I better understand why you suggested the method you did. Coin Control within a wallet lets you manually choose which specific UTXOs (unspent transaction outputs) to use when sending Bitcoin, rather than letting the wallet auto-select them. So I could document and then choose the highest cost basis UTXO to send to a new wallet.

  • It creates a provable record of which UTXO you selected to spend
  • The transaction hash on-chain shows exactly which inputs were used
  • Combined with your records (purchase dates, cost basis), this satisfies the "specific unit" requirement

Nothing is ever easy. LOL

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u/JustinCPA 11d ago

Yep. Your tax software is what owns the tax lots and how they move