The Classify step exists to help you easily distinguish between wallet deposits and withdrawals that have a tax impact from those that don’t (e.g. mining income vs. transferring your crypto from one wallet you own to another).
Why is this step necessary?
All cryptocurrency wallet deposits and withdrawals appear the same on the blockchain. They are simply a series of debits and credits to an address. However, certain deposits and withdrawals are not treated the same from a tax perspective. Therefore, we need a way to classify them so that the appropriate tax treatment can be applied.
An Ethereum staking reward is deposited to your Coinbase wallet. That same day, you send Ethereum from your MetaMask wallet into your Coinbase wallet.
Both of these transactions appear the same: as deposits to your Coinbase wallet. However, one transaction is taxable income (the staking reward) and the other is a non-taxable self-wallet transfer (the MetaMask transfer). Therefore, these deposits need to be correctly classified so the appropriate tax treatment can be applied.
Most of the time, CoinLedger can handle these classifications automatically for you based on the data we get back from exchanges and blockchains. However, sometimes you may need to manually classify particular deposits or withdrawals.
All of your currently classified deposits and withdrawals will appear in the Classified section of the 2. Classify step (pictured below). This is the landing state, or the default view, of the Classify step.
Simply put, the Classified section is showing you all of your classified deposits and withdrawals —income, mining, staking, payments, etc.
This is designed to give you a quick look into all of your various income events that you will owe income taxes on.
Deposits and withdrawals that are not classified will not appear on the Classified section of the Classify step.
To classify additional deposits and withdrawals, simply select the Classify More button, and choose the wallet that you wish to classify additional transactions from (pictured below).
Once you select a wallet, you will enter Classifying Mode.
Within Classifying Mode, all transactions that took place within that wallet will appear, including your buys, sells, trades, swaps, etc. However, only Deposit, Withdrawal, and Unmapped transactions are able to be classified. All other transactions will be grayed out and are just there for your reference.
To classify a transaction, simply drill into the transaction, and select the transaction type you wish to classify it as. Once complete, mark the transaction and click ‘Save’.
Important: Deposits, withdrawals, and unmapped transactions that are left unclassified are simply treated as non-taxable self-wallet transfers (a transfer from one wallet you possess to another). 90% of the time, this is the correct classification for your deposit or withdrawal.
Do I need to classify all of my ‘Unclassified’ Transactions?
As mentioned above, unmapped transactions are simply treated as non-taxable self-wallet transfers. For the average cryptocurrency user, this will be the correct classification.
You only need to specifically classify your deposits or withdrawals that have tax implications—i.e. those that were income or disposal events. We’ve listed some of those events below:
DeFi Transactions (NFT Mint, Composite Swap etc.)
What if I have no transactions to classify?
If you have no deposits or withdrawals that need further classification, you can move past the classify step.
For the average cryptocurrency user, no manual classification will be required.