Crypto 101 Pay less tax - Cryptocurrency accounting methods. FIFO, LIFO, HIFO. Capital gains tax.

[@robertrudick2492]

Very well explained! I save all ur videos for my clients and information. You are an excellent professor. I appreciate ur time and effort. Thank you for sharing ur specialize knowledge. If I'm ever in ur home state lunch or dinner my treat. I'm offend in Chicago. God bless you and your family with good health and well being in life 🙏🏻 ❤

[@garyleewhite]

So when the exchanges provide the 1099-B next year, will they use FIFO method to arrive at the profit/loss amount? And if they do, can we still use HIFO on our own, or will we be forced to stick with the method the exchange reported? And will that method be indicated somewhere on the 1099-B?

[@KatieStOresCFPChFCEA]

[10:45am PST] @SaintOres.com Hello Gary, Brokerage companies will use the FIFO method to arrive at the profit/loss amount on Form 1099-B. This is the default method for calculating cost basis, and it is the most common method used by investors. However, you can choose to use a different method, such as the specific identification method or the average cost method. If you do, you will need to provide the brokerage company with the necessary information to calculate your cost basis using that method. The method you use will be indicated on Form 1099-B. It's important to note that the method you use to calculate cost basis can have a significant impact on your taxes. So, it's important to choose the method that is right for you. If you're not sure which method to use, you should consult with a tax advisor.

[@garyleewhite]

@@KatieStOresCFPChFCEA Thank you Katie for the quick & detailed response, it is much appreciated!

[@KatieStOresCFPChFCEA]

[1:47am PST] @SaintOres.com You're welcome... And remember, you've got until April 18th this year to file.

[@eldarin67]

Appreciate the video and knowledge shared!

[@KatieStOresCFPChFCEA]

[11:27am PST] @TaxesbyKatie.com Thanks Eldarin, I appreciate the nice comment.

[@ShortyGuzman13]

Glad I watched this used the HIFO method last year got money back this year not so great noticed switching to LIFO would result in bigger savings but trigger a red flag from the IRS so I will stick to FIFO

[@KatieStOresCFPChFCEA]

[1:55pm PST] @SaintOres.com Thanks Dog Father.... Glad it helped.

[@rcwann1]

Thanks for the video, great info!

[@KatieStOresCFPChFCEA]

[11:07am PST] @TaxesbyKatie.com Thanks Clinton, Glad it was helpful!

[@mohammedzeeshan2124]

Hey thanks for the video.

[@KatieStOresCFPChFCEA]

[10:54am PST] @TaxesbyKatie.com I appreciate it Mohammed, Thanks for watching!

[@alexrambo3325]

you are amazing. Thank you.

[@KatieStOresCFPChFCEA]

[12:41pm PST] @SaintOres.com Thanks Alex, I think that's my first 'Amazing'.

[@peacew6]

With the end of universal method, does fifo mean first bought or first deposited to the wallet?

[@KatieStOresCFPChFCEA]

Hello Dak, The FIFO method in crypto accounting refers to **first bought**, not first deposited. This means that when you sell cryptocurrency, the coins that were purchased earliest are considered to be sold first.

[@peacew6]

@@KatieStOresCFPChFCEA Is that the case for both universal or wallet-tracking method?

[@KatieStOresCFPChFCEA]

Hey @peacew6! Yes, same case for both the universal method and the wallet-tracking method.

[@jackizle]

What about using a weighted average cost basis? Does IRS allow that?

[@KatieStOresCFPChFCEA]

Yes, it is one of the acceptable methods.

[@IgoOutlateAtnight]

Thanks. When you say "accurate record keeping", I assume as long as you can link your exchange information to tax software that is probably accurate enough?

[@KatieStOresCFPChFCEA]

[12:11pm PST] @TaxesbyKatie.com Hey Ryan, Typically, to report crypto on your taxes, accurate record keeping will include the cryptocurrency name, the date you've obtained it, the date you've sold or traded it, cost basis, and sales prices. You should be okay if your exchange sent you this info.

[@carlicripe]

Thank you so much for this amazing video! A bit off-topic, but I wanted to ask: I have a SafePal wallet with USDT, and I have the seed phrase. (air carpet target dish off jeans toilet sweet piano spoil fruit essay). Could you explain how to move them to Binance?

[@KatieStOresCFPChFCEA]

Hey Carli, I love turtles. Sorry, I only know different tax strategies. And not much about moving crypto on The Intergalactic Information Superhighway.

[@Nicktt24]

When gifting crypto, for the cost basis, is it optional to use FIFO or HIFO when preparing the transaction record for the recipient?

[@KatieStOresCFPChFCEA]

Hello Nick, It is neither. When determining the cost basis for gifted crypto, you must use fair market value (FMV) at the time of gifting and the donor's adjusted basis. Here's how it works: If the FMV of the gifted crypto is higher than the donor's adjusted basis:The recipient's cost basis is equal to the FMV of the gift at the time of receipt. If the FMV of the gifted crypto is lower than the donor's adjusted basis:The recipient's cost basis is equal to the donor's adjusted basis. It is highly recommended to consult with a tax professional for specific advice regarding your crypto gift tax implications

[@Nicktt24]

@@KatieStOresCFPChFCEA I understand FMV, but how do I get the “donor’s adjusted basis” without using FIFO or HIFO? Wouldn’t I have to determine the original purchase price to calculate the donor’s adjusted basis?

[@KatieStOresCFPChFCEA]

Hi Nick, The IRS treats cryptocurrencies as capital assets, which means they are taxed in a similar way to stocks. When you buy stocks, the adjusted basis is usually calculated by adding the purchase price to any associated costs, like commissions and recording or transfer fees. For more information, you can refer to Publication 551 www.irs.gov/pub/irs-pdf/p551.pdf.

[@Nicktt24]

@@KatieStOresCFPChFCEA- if the donor made multiple bitcoin purchases at different prices, and then gave a small fraction of their bitcoin holdings as a gift, do they get to pick the purchase date or elect to use FIFO, HIFO, LIFO, etc? All of the donor’s bitcoin is held in the same digital wallet. It is not separated by dates of purchase.

[@Nicktt24]

@@KatieStOresCFPChFCEA - the cost basis is where it gets complicated. If only gifting a fraction of your holdings, how do you determine the cost basis when the giver bought bitcoin on numerous occasions? It isnt a clean 1 for 1. FIFO? HIFO?

[@jayphree123]

Thank you for this video Katie.. do you know if we're supposed to use a "single depot" for taxation method vs. "multiple depot" if we only have 1 exchange and 1 wallet in that exchange?.. I assume single.. but I don't know why the short term tax gain is +$1000 for single depot vs -$2000 for short term tax gain for multiple depot? I can't find this info ANYWHERE lol help : P

[@KatieStOresCFPChFCEA]

[10:31am PST] @SaintOres.com Hello Jeff, Crypto accounting... so straight forward... Here we go... The difference in short term tax gain between single depot and multiple depot taxation methods is due to the way that each method calculates the cost basis of your assets. Single depot: Under the single depot method, your cost basis is the total amount of money you have invested in all of your assets, regardless of when you bought them. This means that if you sell an asset at a profit, you will be taxed on the entire profit, even if you have held the asset for a long time. Multiple depot: Under the multiple depot method, your cost basis is the amount of money you invested in each individual asset, when you bought it. This means that if you sell an asset at a profit, you will only be taxed on the profit that you made since you bought the asset. This can be more complicated to calculate, but it may result in lower tax liability if you have made frequent trades with short holding periods. In your case, you only have one exchange and one wallet, so the difference between the two methods is negligible. However, if you have multiple exchanges or wallets, the multiple depot method can save you money on taxes. ***To determine which method is best for you, you should consult with a tax advisor. Note***Here are some additional things to consider when choosing a taxation method: Your investment strategy: If you are a long-term investor, the single depot method may be a good option for you. This is because you are more likely to make a profit on your investments over the long term, and the single depot method will allow you to keep more of your profits. Your tax bracket: If you are in a high tax bracket, the multiple depot method may be a better option for you. This is because the multiple depot method will allow you to defer some of your taxes until you sell your assets. Your risk tolerance: If you are a risk-averse investor, the single depot method may be a better option for you. This is because the single depot method is more predictable, and you will know exactly how much tax you will owe when you sell your assets. Ultimately, the best way to choose a taxation method is to consider your individual circumstances and goals.

[@RedHotAmarth]

@@KatieStOresCFPChFCEA hi! I'm from EU, plan to start pay taxes and now try Koinly software testing, how can i find more about multiple depot metod? Its first time while i heard this. Does this work for EU countries? Because now i'm in position where if i have no old records for first years through some closed markets and need to use HIFO only, because in another case i cant work as a daytrader anymore - it makes me loosing all money with old strategy (playing on BTC--Altcoin-BTC mostly without exit in cash)

[@KatieStOresCFPChFCEA]

Hello Amarth, I can't answer the question on the EU. I am a tax specialist empowered by the U.S. Dept of the Treasury. You should look for the same type of designation in the country you are in. Find an expert because there seems to be a lot of misinformation concerning taxes and how to calculate them. Good luck.

[@RedHotAmarth]

@@KatieStOresCFPChFCEA thank you! I will try to find a local expert )

[@matdatinh]

Hello, I used HIFO in Koinly to track all my trades. It does show a lot of saving in Capital Gains. I am wondering if HIFO will raise my auditing with the IRS. Thanks in advance.

[@KatieStOresCFPChFCEA]

[10:17am PST] @TaxesbyKatie.com Hello Alex, As long as your accounting looks organized, and you haven't changed methods a bunch of times, you should be fine. Most crypto reporting I've seen from people this year was a mess and took a while to clean up.

[@CryptoTruthNoMotive]

I never fully understood why a large capital gain using FIFO is bad. When investing, dont we want large capital gains? I understand HIFO can save on paying taxes during a bull run, I just dont understand how it saves on taxes. During a bull run, one person using HIFO and someone else using FIFO, if they had identical portfolios and sold everything exactly the same, would the person using HIFO end up with more money in their hands after tax? Thank you

[@KatieStOresCFPChFCEA]

If two investors had identical portfolios and sold everything during a bull run: The investor using HIFO would have lower capital gains, hence paying less in taxes. The investor using FIFO would have higher capital gains, resulting in higher tax payments. Therefore, the HIFO investor would likely end up with more money in their hands after taxes, because they paid less in taxes due to smaller capital gains. While large capital gains sound good, they mean you'll owe more in taxes. Investors often aim to manage their gains and losses to minimize tax impact, maximizing their net returns.

[@CryptoTruthNoMotive]

@@KatieStOresCFPChFCEA Wow quick response! Youve got yourself a customer. Thank you.

[@KatieStOresCFPChFCEA]

You're welcome. I think with the run that Crypto had in 2024, there are going to be a lot of Crypto tax questions. I probably should post a updated video. Have a great New Year.

[@CryptoTruthNoMotive]

@@KatieStOresCFPChFCEA people are going to be very confused and shocked when they hear about 1099da.

[@CryptoTruthNoMotive]

Quick question, if I sold all crypto in my portfolio on 12/31/24 so that going into 2025 the portfolio has a $0.00 balance, do you know if we can use HIFO in 2025 with the new Rev. Proc. 2024-28 1099-da rules now in effect? I keep reading that exchanges will report gains via FIFO to the IRS in 2025 via 1099-DA's and cant find anywhere we can still use HIFO. Im thinking if going into 2025 there is a zero balance in the portfolio so that there are no transactions to track to previous years, we could use HIFO as long as we keep our crypto on the exchange and dont transfer them off the exchange (so that the cost basis remains intact). Also, how can we contact you so become a client? Thank you.

[@KatieStOresCFPChFCEA]

Hello Crypto Truth. Sorry for the delay, my videos are getting hit hard with crypto spam, so most all crypto comments go right to "held" status --It's a great question. Under the new IRS rules outlined in Rev. Proc. 2024-28, starting in 2025, exchanges will be required to report gains using the FIFO method via Form 1099-DA. However, you can still use the HIFO method if you choose to do so. To use HIFO, you'll need to **specifically identify** the units of cryptocurrency sold and maintain detailed records of your transactions. This means you'll need to document the acquisition dates, prices, and unique identifiers for each unit of cryptocurrency. If you don't specify the units, the IRS will default to FIFO. Does this help clarify things for you?

[@CryptoTruthNoMotive]

@@KatieStOresCFPChFCEA totally understandable. Thanks for the free reply. Sounds like once word of this spreads many people will just use FIFO.