Choosing between FIFO and LIFO is the single biggest tax-planning decision an active crypto trader makes. In the wrong direction, it can produce a four-figure swing on a five-figure portfolio.
This article works through a concrete example, then summarises which jurisdiction gives you the choice.
The setup
Imagine a trader who bought ETH four times over the year:
- January, 1 ETH at $1,800 — basis $1,800
- April, 1 ETH at $2,400 — basis $2,400
- July, 1 ETH at $3,000 — basis $3,000
- October, 1 ETH at $2,200 — basis $2,200
In November the trader sells 2 ETH at $3,200 — proceeds $6,400.
Under FIFO (oldest lots first)
The disposal consumes the January and April lots in order. Total cost basis: $1,800 + $2,400 = $4,200. Capital gain: $6,400 − $4,200 = $2,200.
The trader keeps the July ($3,000) and October ($2,200) lots. Both are now unrealised; the July lot is in profit on paper, the October lot is at break-even.
Under LIFO (newest lots first)
The disposal consumes the October and July lots in reverse order. Total cost basis: $2,200 + $3,000 = $5,200. Capital gain: $6,400 − $5,200 = $1,200.
The trader keeps the January ($1,800) and April ($2,400) lots. The unrealised gain on the kept inventory is now $2,800 — substantially higher than under FIFO, because the high-basis lots have been disposed of and the low-basis ones remain.
The trade-off
LIFO reduces the realised gain in this period by $1,000. At a 20% capital gains rate, that's $200 saved this year. But the deferred gain is still in the inventory — when the trader eventually sells the January and April lots, the basis is lower and the realised gain is higher. LIFO is a deferral mechanism, not a saving mechanism.
The exception is when LIFO disposals push a position from short-term into long-term territory at a lower realised gain. In a jurisdiction with preferential long-term rates (US: 0–20% vs 10–37% for short-term), this can be a permanent saving — if the trader still holds the lots a year later.
Where you can choose
United States: specific identification is permitted. FIFO, LIFO, and HIFO are all available if the taxpayer maintains lot-level records. FIFO is the default if no method is selected.
United Kingdom: no choice. HMRC's section 104 pool aggregates all identical units, with same-day and 30-day rules layered on top. The pool produces the same answer regardless of which lot the taxpayer "intended" to dispose of.
Germany: FIFO is mandatory under BMF guidance. The one-year holding-period exemption interacts with FIFO; lot-level records are essential for tracking which lots have crossed the year boundary.
Australia, Canada: specific identification is permitted; FIFO is the default. Most other jurisdictions follow one of these patterns.
What this means for the choice of crypto tax tool
Tools that "support FIFO and LIFO" but apply the choice retroactively to a single average-cost balance produce the wrong answer. The right answer requires every disposal to consume specific lots in the chosen order, with the chosen lots locked into the disposal record so the audit trail is preserved.
Atlas Ledger locks the cost basis method at portfolio creation. Switching method requires an explicit re-computation that produces a side-by-side audit log of the old and new realised positions, so the change is intentional and visible.
Takeaway: FIFO vs LIFO is a deferral question, not a saving question, except where it interacts with long-term rate preferences. Your jurisdiction may not give you the choice. Either way, lot-level record keeping is the prerequisite.