FIFO (First In, First Out)

FIFO (First In, First Out) is an inventory accounting method where you sell the oldest assets first. For cryptocurrency, this is the IRS default if you don't specify another method.

How It Works: If you bought:

• 1 BTC in 2020 for $10,000
• 1 BTC in 2023 for $40,000
• 1 BTC in 2024 for $60,000

When you sell 1 BTC, FIFO assumes you sold the 2020 coin (cost basis $10,000).

Pros:

• Simple and clear
• Often results in long-term capital gains (lower tax rates) if you're a long-term holder
• IRS default—no additional documentation needed

Cons:

• May trigger larger gains (oldest coins often have lowest cost basis)
• Less tax optimization flexibility

Alternatives:

• LIFO: Sell newest coins first
• HIFO: Sell highest-cost coins to minimize gains
• Specific ID: Manually choose which coins to sell (requires documentation)

Important: Once you choose an accounting method for a specific cryptocurrency, you should use it consistently. Switching methods mid-year can raise IRS scrutiny.