HIFO/LIFO vs FIFO

[Unsaint32]

I heard IRS allows LIFO or HIFO method for crypto tax calculation (as oppose to FIFO), but LIFO/HIFO methods require more thorough transaction records keeping? 

1) Is that true?  Does IRS even allow LIFO or HIFO for crypto tax?

2) If true, using API to import transaction documents from Coinbase to Koinly satisfy the record keeping requirement?

3) Also, does using either LIFO or HIFO increase the likelihood of audit than using FIFO?

Thanks

[1715224133]

1715224133

[1715224133]

1715224133

[dansus021]

I heard IRS allows LIFO or HIFO method for crypto tax calculation (as oppose to FIFO), but LIFO/HIFO methods require more thorough transaction records keeping? 

1) Is that true?  Does IRS even allow LIFO or HIFO for crypto tax?

2) If true, using API to import transaction documents from Coinbase to Koinly satisfy the record keeping requirement?

3) Also, does using either LIFO or HIFO increase the likelihood of audit than using FIFO?

Thanks

I don't pretty understand about this  and im looking on the internet what is IRS LIFO or HIFO FIFO

IRS stands for Internal Revenue Service
 FIFO and LIFO accounting are methods used in managing inventory and financial matters involving the amount of money a company has to have tied up within inventory of produced goods, raw materials, parts, components, or feedstocks

i still dont understand tho 

[Yogee]

I heard IRS allows LIFO or HIFO method for crypto tax calculation (as oppose to FIFO),

Last In First Out is disallowed by many countries following the International Financial Reporting Standards [IFRS] but it is allowed under US Generally Accepted Accounting Principles [GAAP].

I have also read articles saying FIFO isn't allowed in the US but they are probably old. The 2019 IRS publication recognizes both LIFO and FIFO in identifying cost. Read https://www.irs.gov/publications/p538

I have not heard about the Highest In, First Out method but based on what I've read from my search, it is neither recognized under US GAAP or the IFRS.

but LIFO/HIFO methods require more thorough transaction records keeping?

Record keeping should depend on the method of valuation used. You can use all legal methods but how you keep your records should be the same.
 

1) Is that true?  Does IRS even allow LIFO or HIFO for crypto tax?

Not HIFO as explained above.

2) If true, using API to import transaction documents from Coinbase to Koinly satisfy the record keeping requirement?

I believe so as there are no other more reliable records that you can present.

3) Also, does using either LIFO or HIFO increase the likelihood of audit than using FIFO?

Exclude HIFO.

The likelihood of getting audited by the IRS does not depend on the methods you used. It could be based on the amount you declared or the frequency of your filing. I don't know what other criteria tax bodies use but I really doubt it depends on cost valuation methods.

P.S.
My answers are guides only and not necessarily accurate. You should seek help from an accountant in your area.

[Unsaint32]

Thank you so much for your answer. 

Based on your advice, I did some more research and now I am almost certain FIFO and LIFO (even HIFO) are acceptable to IRS.
 
https://gritdaily.com/irs-releases-new-rulings-cryptocurrency-taxes-2019/
https://donnellytaxlaw.com/tax-expert-picking-the-best-method-for-reporting-your-cryptocurrency-gains/

Koinly allows me to compare FIFO, LIFO, HIFO for my capital gain.  For me, LIFO was about 1/2 of FIFO. 

Thank you.

[odolvlobo]

Thank you so much for your answer. 

Based on your advice, I did some more research and now I am almost certain FIFO and LIFO (even HIFO) are acceptable to IRS.
 
https://gritdaily.com/irs-releases-new-rulings-cryptocurrency-taxes-2019/
https://donnellytaxlaw.com/tax-expert-picking-the-best-method-for-reporting-your-cryptocurrency-gains/

Koinly allows me to compare FIFO, LIFO, HIFO for my capital gain.  For me, LIFO was about 1/2 of FIFO. 

Thank you.

Stock brokerages let you choose the lots when you are selling, so I don't see why it wouldn't work for crypto.

[zeuner]

Thank you so much for your answer. 

Based on your advice, I did some more research and now I am almost certain FIFO and LIFO (even HIFO) are acceptable to IRS.
 
https://gritdaily.com/irs-releases-new-rulings-cryptocurrency-taxes-2019/
https://donnellytaxlaw.com/tax-expert-picking-the-best-method-for-reporting-your-cryptocurrency-gains/

Koinly allows me to compare FIFO, LIFO, HIFO for my capital gain.  For me, LIFO was about 1/2 of FIFO. 

Thank you.

Does the IRS expect the FIFO/LIFO/HIFO methods to be applied to all the crypto assets owned by the tax subject (even those not used for trading at all), or is it applied within one exchange at the time?

[figmentofmyass]

Does the IRS expect the FIFO/LIFO/HIFO methods to be applied to all the crypto assets owned by the tax subject (even those not used for trading at all), or is it applied within one exchange at the time?

the determination applies to all of your assets.

if you're using multiple exchanges and maintaining a separate long term stash, specific lot identification will be easier. it will probably provide the best tax benefits too.

Specific identification can be used as an accounting method for trading crypto assets. This means that taxpayers can select which units and lots of cryptocurrency they are selling at a given time as long as they can specifically identify them and support the cost basis of the units.

If you are unable to specifically identify your cryptocurrencies, you are to default to a first-in first-out (FIFO) basis.
https://cryptotrader.tax/blog/new-irs-cryptocurrency-tax-guidance

[zeuner]

Does the IRS expect the FIFO/LIFO/HIFO methods to be applied to all the crypto assets owned by the tax subject (even those not used for trading at all), or is it applied within one exchange at the time?

the determination applies to all of your assets.

This is interesting, considering that assets will have a fiscal effect even if they are never used for making profit.

if you're using multiple exchanges and maintaining a separate long term stash, specific lot identification will be easier. it will probably provide the best tax benefits too.

Specific identification can be used as an accounting method for trading crypto assets. This means that taxpayers can select which units and lots of cryptocurrency they are selling at a given time as long as they can specifically identify them and support the cost basis of the units.

If you are unable to specifically identify your cryptocurrencies, you are to default to a first-in first-out (FIFO) basis.
https://cryptotrader.tax/blog/new-irs-cryptocurrency-tax-guidance

So you could essentially mimick FIFO for every single exchange by always identifying assets bought first on the given exchange, no?

[figmentofmyass]

Does the IRS expect the FIFO/LIFO/HIFO methods to be applied to all the crypto assets owned by the tax subject (even those not used for trading at all), or is it applied within one exchange at the time?

the determination applies to all of your assets.

This is interesting, considering that assets will have a fiscal effect even if they are never used for making profit.

that's the essential distinction between specific lot identification and all other methods like FIFO etc. the former accounts for what actually happened. the latter is sort of an arbitrary accounting of your entire portfolio.

if you're using multiple exchanges and maintaining a separate long term stash, specific lot identification will be easier. it will probably provide the best tax benefits too.

Specific identification can be used as an accounting method for trading crypto assets. This means that taxpayers can select which units and lots of cryptocurrency they are selling at a given time as long as they can specifically identify them and support the cost basis of the units.

So you could essentially mimick FIFO for every single exchange by always identifying assets bought first on the given exchange, no?

here's an example of the kind of tax benefits you can get vs FIFO: https://www.investopedia.com/articles/05/taxlots.asp

[zeuner]

Does the IRS expect the FIFO/LIFO/HIFO methods to be applied to all the crypto assets owned by the tax subject (even those not used for trading at all), or is it applied within one exchange at the time?

the determination applies to all of your assets.

This is interesting, considering that assets will have a fiscal effect even if they are never used for making profit.

that's the essential distinction between specific lot identification and all other methods like FIFO etc. the former accounts for what actually happened. the latter is sort of an arbitrary accounting of your entire portfolio.

No doubt about that. Still, in my opinion there is a different between a legal fiction of a specific order of sales that covers assets that were actually sold, and a legal fiction that covers assets that were not sold (and might never be).

Suppose the fiscal authority wants to use FIFO on all assets, and the tax subject tells them about some USB stick with X Bitcoins lying somewhere. In order to apply FIFO, they would have to take the USB stick into account, which can easily make the result rather arbitrary. This could be avoided if only those assets are taken into account that have actually been deposited on the exchange.

if you're using multiple exchanges and maintaining a separate long term stash, specific lot identification will be easier. it will probably provide the best tax benefits too.

Specific identification can be used as an accounting method for trading crypto assets. This means that taxpayers can select which units and lots of cryptocurrency they are selling at a given time as long as they can specifically identify them and support the cost basis of the units.

So you could essentially mimick FIFO for every single exchange by always identifying assets bought first on the given exchange, no?

here's an example of the kind of tax benefits you can get vs FIFO: https://www.investopedia.com/articles/05/taxlots.asp

The link doesn't open (error 462). Will try again later. I understand the point, though. Still, in the case of the image, both lots are being used for trading. So, there would be a justification to take into account both of them considering they increase the economic capability of the tax subject.