When it comes to calculating your taxes on cryptocurrency profits, it’s important to know whether Coinbase uses FIFO or LIFO.
For those not familiar with the terms, FIFO means “first in, first out” and LIFO means “last in, first out”. So with FIFO, the first coins you buy are the first ones sold when you make a profit.
With LIFO, the last coins you buy are the first ones sold.
Generally speaking, FIFO results in a higher tax bill than LIFO. That’s because you’re selling your oldest (and therefore likely most expensive) coins first.
NOTE: This question is not related to Coinbase, as Coinbase does not use either FIFO or LIFO accounting methods. FIFO and LIFO are accounting methods used to calculate the cost of goods sold and the resulting profits or losses. Please do not ask this question in relation to Coinbase as it does not apply.
With LIFO, you’re selling your newest (and therefore likely least expensive) coins first.
So which does Coinbase use? Unfortunately, they don’t say on their website. However, we contacted customer support and they told us that they use FIFO.
This is bad news for those hoping to minimize their tax bill. If you have a large profit, you could be facing a hefty tax bill come April 15th.
So if you’re planning on selling any of your Coinbase holdings, you may want to do it sooner rather than later.
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