Crypto Accounting Methods

Investment accounting methods such as FIFO, LIFO, HIFO, and TokenTax's own minimization determine how acquisitions and sales match when calculating profits or losses.
A Frequently Asked Question about the IRS Cryptocurrency reveals that certain identification information (the cost-based choice to use for sale) is allowed for cryptocurrencies. This means that you can calculate cryptographic taxes using a variety of accounting methods.
FIFO, LIFO, HIFO features and minimization First-in first-out (FIFO): First-in first-out method: First-in first-out method.
Last-in, first-out (LIFO): The last acquired asset is sold first.
Highest In, First Out (HIFO): The highest priced asset is sold first
Minimize: TokenTax's own tax-adjusted HIFO algorithm
What about the average cost method? In Canada, the United Kingdom, and certain other countries, taxpayers must use the average cost calculation. In this way, the cost base is set as the average price paid for all tokens in a particular cryptocurrency. This cost base is used for all sales of that cipher across all assets.
Please note that this method is not used in the United States and other countries that require a FIFO, LIFO, etc. method.
What is the best way to reduce tax obligations? To lower taxes, Highest In First Out (HIFO) accounting sells the assets with the highest cost base first.
Example:
Suppose you bought 5 BTC when you were trading for $ 10,000 in 2015. In 2020, trading at $
$ 25,000, there is only one BTC.
In 2021, 1 BTC will be sold for $ 50,000. With
HIFO Accounting, you can allocate a 2021 tax cost base of $ 25,000 to BTC sold in 2021. That way, you would report a capital gain of $ 25,000 instead of $ 40,000.
CryptoRobotics' crypto tax software has improved the HIGH method with a unique minimization accounting method that adjusts based on individual tax rates to minimize crypto tax as much as possible.
Which billing method should I use? Ultimately, the accounting method you choose does not change anything about total capital gains. It only changes the timing of your capital gains