What is the impact of using FIFO or LIFO in cryptocurrency trading?

3 answers

• Dec 20, 2021 · 3 years ago
  Using the FIFO method in cryptocurrency trading means that the first coins you purchased will be the first ones sold. This method is commonly used for tax reporting purposes as it aligns with the 'first-in-first-out' principle. FIFO can have an impact on your profitability, especially during times of price volatility. If you bought coins at a lower price and the market value has increased significantly, selling those coins first can result in higher capital gains. However, if the market value has decreased, FIFO can lead to capital losses. It's important to consider the potential tax implications and consult with a tax professional to understand how FIFO may affect your trading strategy.
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• Dec 20, 2021 · 3 years ago
  On the other hand, using the LIFO method in cryptocurrency trading means that the most recently acquired coins will be the first ones sold. This method can be beneficial during times of price appreciation. If you bought coins at a lower price and the market value has increased, selling the most recently acquired coins first can result in higher capital gains. However, LIFO may not align with the 'first-in-first-out' principle and may require additional documentation for tax reporting. It's important to note that the use of LIFO may not be allowed in all jurisdictions, so it's crucial to consult with a tax professional to ensure compliance with local regulations.
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• Dec 20, 2021 · 3 years ago
  According to BYDFi, a popular cryptocurrency exchange, they recommend using the FIFO method for tax reporting purposes. FIFO provides a clear and straightforward approach to calculating capital gains and losses. However, it's important to note that each trader's situation may vary, and it's always advisable to consult with a tax professional to determine the best method for your specific circumstances. Additionally, it's worth considering the potential impact of using different methods on your overall trading strategy and profitability.
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