How does the HIFO (Highest In, First Out) method affect the cost basis of my cryptocurrency holdings?

3 answers

• Nov 26, 2021 · 3 years ago
  The HIFO (Highest In, First Out) method is a way to calculate the cost basis of your cryptocurrency holdings. It involves selling the coins or tokens with the highest purchase price first, and then using that price as the cost basis for tax purposes. This method differs from FIFO (First In, First Out), where the coins or tokens purchased first are sold first, and LIFO (Last In, First Out), where the most recently purchased coins or tokens are sold first. The advantage of using the HIFO method is that it can potentially reduce your tax liability by using the highest purchase price as the cost basis. However, it may not always be the most advantageous method, as it depends on the price fluctuations of the cryptocurrency. It's important to consult with a tax professional to determine the best method for your specific situation.
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• Nov 26, 2021 · 3 years ago
  So, the HIFO (Highest In, First Out) method is all about prioritizing the sale of your most expensive cryptocurrency holdings. It's like selling your Lamborghini before your Honda Civic. By using the highest purchase price as the cost basis, you can potentially minimize your capital gains and reduce your tax burden. However, keep in mind that the HIFO method may not always be the best choice. If the price of your cryptocurrency has been steadily increasing, selling the highest-priced coins first means you'll be paying taxes on larger gains. On the other hand, if the price has been dropping, using the HIFO method could help you offset some of your losses. It's a balancing act, and it's always a good idea to consult with a tax professional to make sure you're making the right decision.
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• Nov 26, 2021 · 3 years ago
  The HIFO (Highest In, First Out) method is one of the options you have when calculating the cost basis of your cryptocurrency holdings. It's important to note that different exchanges and platforms may have different methods available, so it's always a good idea to check with your specific exchange. At BYDFi, for example, we offer the HIFO method as an option for our users. This method can be useful for those who want to prioritize selling their highest-priced coins first. However, it's important to consider the potential tax implications and consult with a tax professional to ensure compliance with local regulations. Ultimately, the choice of method depends on your individual circumstances and goals.
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