Accounting methods — FIFO, LIFO, minimization — explained
As we all know, the IRS hasn't said much about cryptocurrency since 2014, when they said it is not a currency and all transactions need to be reported, no matter how small.
However, for securities (stocks, bonds, etc) in the United States, you can use a different cost basis to calculate your taxes. Your tax bill can vary widely depending on the accounting method you use.
TokenTax automatically calculates your tax bill using each method, so you know which one minimizes your tax bill the most.
Here is how the different methods work:
First in, first out (FIFO). Assets acquired first are sold first.
Last in, first out (LIFO). Assets acquired last are sold first.
TokenTax minimization. (Tax-rate adjusted highest price first out)
First, you enter your filing information so we learn your marginal tax rates on long-term capital gains and short-term capital gains. Our algorithm will look at all available purchases and lets you select the one that minimizes taxes — prioritizing long-term gains.
Average cost: Cost basis for average cost is calculated via the average price you paid for all units of a specific cryptocurrency, and uses that unit cost as the cost basis rate for every single sale of that crypto. across all your assets. This isn’t used for U.S. crypto tax. but it is required in the U.K. and Canada.
The accounting method you choose will not change your total capital gains. It only changes the timing of your capital gains and helps prioritize long-term gains over short-term gains. We are the only crypto-tax platform that has this functionality.
TokenTax does the work so you don’t have to.
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