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How does using LIFO versus FIFO affect the tax implications for cryptocurrency investors?

avatarjorge ngonga jotaDec 25, 2021 · 3 years ago1 answers

Can you explain how the choice between LIFO (Last-In-First-Out) and FIFO (First-In-First-Out) accounting methods affects the tax implications for individuals who invest in cryptocurrencies? What are the differences between these two methods and how do they impact the taxes paid by cryptocurrency investors?

How does using LIFO versus FIFO affect the tax implications for cryptocurrency investors?

1 answers

  • avatarDec 25, 2021 · 3 years ago
    Using LIFO or FIFO accounting methods can have different tax implications for cryptocurrency investors. LIFO assumes that the most recently acquired cryptocurrencies are the first ones sold, while FIFO assumes that the oldest ones are sold first. The choice between these methods can impact the cost basis of the sold cryptocurrencies, which in turn affects the calculation of capital gains and taxes. With LIFO, the cost basis is based on the most recent purchase price, potentially resulting in higher capital gains and higher taxes. On the other hand, FIFO uses the cost basis of the oldest purchased cryptocurrencies, which may result in lower capital gains and lower taxes. It's important for investors to consider their specific situation and consult with a tax professional to determine which accounting method is most beneficial for them.