What are Coinswitch, Changelly, and Shapeshift?
Coinswitch, Changelly, and Shapeshift are some of the services that many wallets are offering to allow you to trade within the wallet without first sending your coins to an exchange.
With these services, you send coins to an address and also provide a valid receive address for the type of coin you wish to purchase with your existing crypto. You are given several options for exchanging coins on different exchange services and are provided with the fees for each one. You pick an exchange (even if you don't have an account!) and your coins are sent off to make the switch. After a few minutes, the new coins show up in your wallet.
How does this work for tax reporting?
As long as you have imported your sources for both sides of the trade, then this will be correctly entered for tax purposes. All crypto to crypto trades are taxable on the "sell" side. You do not need to have an account with the exchange that actually does your trade, but you DO need to import all sources involved in the outgoing and incoming parts of the transaction.
Let's say you have an Abra wallet and use Coinswitch to make a trade of .05 BTC in Abra to 4.2 ETH on March 5, 2022 at 12pm, which you send to My Ether Wallet. Coinswitch offers you Binance, Bittrex, and Gemini as possible exchanges to make your trade. You decide on Bittrex because the fee is the lowest.
After connecting Abra and My Ether Wallet to ZenLedger for 2022 taxes, you would see:
Abra: Outgoing .05 BTC (this is the SALE that would show up on your 8949) on March 5 at FMV for that day.
My Ether Wallet: Incoming 4.2 ETH for FMV on March 5 at 12:05pm (not taxable as you are now holding this coin).
The Resolution Center workflow may pop up with errors for Coinswitch-type trades. You can safely "Continue Without Resolution" when you encounter this situation or reach out to our support team if you're unsure if it's a valid error. You can read more in our Resolution Center help article.