HIFO vs. FIFO vs. LIFO: Which Method Minimizes Your Crypto Taxes?

Cost Basis Explained: Why It’s the Foundation of Crypto Taxes

The cost basis is the original value of your crypto assets, including purchase price and related fees. It’s essential for calculating capital gains and losses when selling or trading your assets.

‍

Which Method Works Best for Your Portfolio?‍

Let’s understand this with the help of an example

‍

FIFO vs LIFO vs HIFO

Let’s understand the most commonly used Cost Basis Methods with the help of an example. To see how these methods impact taxable gains, let’s consider an example of Satoshi Nakamoto, CFO of Bitcoin Holdings Inc:

• Jan 2017: Bought 1 BTC for $1,000 per BTC
• Jan 2018: Bought 2 BTC for $9,000 per BTC
• Jan 2019: Bought 5 BTC for $6,000 per BTC
• Dec 2024: Sold 2 BTC for $100,000 per BTC

Using FIFO, LIFO, and HIFO, here’s how Satoshi’s taxable gains are calculated:

‍

Cost Basis for Common Crypto Transactions

Crypto isn’t just buying and selling; unique events also affect cost basis:

‍

Country-Specific Crypto Tax Methods

Regulations vary globally, and so do preferred cost-basis methods:

‍

Important Notes: Tax authorities may update their guidance periodically. Always check the latest official documentation. Some countries may have additional regional or state-specific requirements.

‍

Adding Fees to Your Cost Basis: Why It Matters

Transaction, gas, and exchange fees can be added to the cost basis, reducing taxable gains. This includes:

Accurately tracking these fees can make a significant difference during tax season.

How Do the Tax Authorities Verify the Cost Basis for Crypto?

The IRS expects accurate and detailed records for:

• Transaction dates.
• Purchase prices and fees.
• Wallet addresses involved.

Failure to provide these can result in penalties. Request Accounting simplifies this by providing you with precise documentation.

Need personalized guidance? Reach out for a free consultation, and let our experts help you simplify the process, keep you compliant, and ensure you’re always audit-ready. With Request Accounting, navigating crypto tax reporting has never been easier.

‍

Different accounting treatments under IFRS and US GAAP‍

The accounting treatment of crypto assets varies between International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP). Under IFRS, crypto assets are generally classified as intangible assets or inventory, depending on their intended use. Intangible assets are typically measured at cost less impairment, with the option to revalue if an active market exists. Inventory held by broker-traders can be measured at fair value less costs to sell.

In contrast, U.S. GAAP has recently updated its guidance. The Financial Accounting Standards Board (FASB) issued ASU 2023-08, which specifies that certain digital assets should be measured at fair value through net income. This represents a shift from previous practices, aligning more closely with fair value measurement principles. 

These differing approaches highlight the importance of understanding the specific accounting standards applicable in each jurisdiction when reporting crypto assets.

Common Questions Answered

Can I switch my accounting method?

Yes, you can switch your accounting method, but the process and implications depend on your country's tax regulations. 

Do I need to report every crypto transaction for taxes?

Yes, most jurisdictions require reporting every taxable crypto event, including sales, trades, and payments. However, non-taxable events like transferring crypto between your own wallets usually don’t need to be reported.

Are transaction fees deductible?

Transaction, gas, and exchange fees can often be included in your cost basis or deducted from proceeds, reducing your taxable gains. Be sure to track and document all fees accurately.

What happens if I don’t keep proper records?

Calculating your cost basis becomes challenging without proper records, and you may face penalties or audits. Using platforms like Request Accounting helps ensure your records are accurate and audit-ready.

Do different countries have different cost basis rules?

Yes, cost-basis rules vary by jurisdiction. For example, the U.S. allows FIFO, LIFO, and HIFO, while the U.K. uses Share Pooling, and Canada applies the Adjusted Cost Base (ACB) method. Always confirm local regulations or consult a professional.

How do I track the cost basis for NFTs?

NFTs are typically considered assets, and their cost basis includes the purchase price and associated fees (like gas fees). When you sell an NFT, you calculate gains or losses based on this cost basis.

Find the Right Cost Basis Method for You

Choosing the correct cost basis method is critical for minimizing tax liabilities and staying compliant. Which one suits your portfolio?

While HIFO can help reduce taxes, it requires thorough documentation — something Request Accounting excels at. Let us handle the complexities so you can focus on growing your portfolio.

Request Accounting makes tracking your cryptocurrency trades across multiple wallets and exchanges seamless. You can generate a comprehensive tax report in minutes with just a few clicks. Our platform connects to your wallets and exchanges, automatically tracking your cost basis for every crypto asset.

Plus, we offer flexibility in accounting methods. Whether you prefer FIFO, LIFO, or HIFO, we make it easy to choose the one that best fits your needs. No more worrying about calculations or manual entries — simply upload your transaction history, and we’ll handle the rest.

‍

‍