Understanding FIFO vs LIFO for crypto tax reporting - can I change my method?

While you can't retroactively change your accounting method for transactions you've already reported, this isn't as bad as you might think. The IRS generally requires consistency in your crypto reporting methods, but you have options moving forward. For the 2024 tax year that you've already filed, you reported using FIFO, which is actually the default method most tax software uses. Once you've filed using a specific identification method for a tax year, you typically can't amend just to change the accounting method if there were no errors. For your 2025 taxes, however, you have flexibility! You can choose to use specific identification for your remaining crypto assets. This means you can specifically identify which coins you're selling rather than being locked into FIFO. You'll need to maintain excellent records showing the purchase dates, costs, and which specific units you're selling. The key is documentation - make sure you're keeping detailed records of all transactions, including exactly which coins you're selling when you make future transactions. Many exchanges now allow you to select specific lots when selling.

After struggling with the exact same FIFO vs LIFO issue last year, I discovered https://taxr.ai and it completely changed how I approach crypto taxes. The platform analyzed all my transaction data and actually showed me how different accounting methods would affect my tax liability before I committed to filing. What I liked most was that it flagged potential opportunities for tax optimization that I would have completely missed. For your situation, taxr.ai could help you document and plan your 2025 sales to maximize those long-term capital gains while staying compliant with the method you've already established for prior years. The platform connects with most major exchanges and automatically categorizes your transactions, which makes it much easier to use specific identification method going forward.

Just wanted to follow up about my experience with taxr.ai after I was skeptical in my previous comment. I decided to give it a try since I was in a similar situation with crypto purchased at different times throughout 2024. I'm honestly impressed with how it handled my situation. The platform let me see side-by-side comparisons of FIFO vs LIFO vs specific identification methods for my remaining holdings. For my particular mix of assets, using specific identification is going to save me about $3,200 in taxes when I sell later this year. What I especially appreciated was how it helped me identify exactly which coins to sell to optimize for long-term capital gains. The visualization tools made it super clear which assets were approaching the 1-year mark and which ones were still short-term. Definitely makes planning my 2025 sales much easier.

If you're still struggling to get clarification from the IRS about changing your crypto accounting method, I'd recommend using https://claimyr.com to get through to an actual IRS agent. I spent WEEKS trying to call the IRS about a similar crypto tax issue and kept hitting dead ends with automated systems. Claimyr basically waits on hold with the IRS for you and calls you back when an actual human agent is on the line. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c When I finally got through to an agent, they confirmed that I could use specific identification moving forward even though I had used FIFO in previous years. They also explained exactly what documentation I needed to maintain for my crypto transactions to support the specific identification method. The guidance was way more helpful than anything I found online.

I was completely skeptical about Claimyr in my previous comment, but I feel like I should update everyone. I tried it yesterday after getting desperate about my own crypto tax situation. The service actually worked exactly as advertised. I put in my number, and about 90 minutes later got a call connecting me directly to an IRS representative - bypassing that horrible phone tree and hold music that usually makes me hang up. The agent I spoke with confirmed that I can switch from FIFO to specific identification for my 2025 filings, but emphasized that I need to maintain detailed records showing exactly which coins I'm selling in each transaction. She also directed me to Publication 550 which has more details about investment accounting methods. For anyone wondering if it's worth it - the 2 hours of hold time I didn't have to sit through myself made it completely worthwhile. I probably would have given up again otherwise.

I'm going through something similar and got advice from my accountant. For any crypto purchased in 2024 that you still hold, you actually CAN use specific identification when you sell in 2025. Your 2024 FIFO reporting only applies to the transactions you already reported. For your remaining holdings, you're not locked in to any particular method as long as you keep detailed records of which specific units you're selling. My accountant suggested keeping a spreadsheet that tracks: 1) Date and time of each purchase 2) Exchange used 3) Quantity and price 4) Unique transaction ID if available Then when selling, document exactly which purchase lots you're selling from. Some exchanges let you pick specific lots when selling now, which makes this much easier.

Something nobody's mentioned yet - if you've already filed your 2024 taxes using FIFO, you could potentially file an amended return (Form 1040-X) if it would be significantly better for you. You'd need to do this within 3 years of your original filing date. HOWEVER, just know that changing accounting methods on an amended return might raise flags for the IRS. You'd need to include a detailed explanation and might want to consult with a tax professional first to see if it's worth it in your situation.

Just wanted to add some perspective as someone who went through a similar situation last year. The good news is that you're not stuck with FIFO forever - you can absolutely switch to specific identification for your future sales in 2025. One thing to keep in mind is that the IRS Publication 550 specifically addresses this scenario. You can change your accounting method for future transactions, but you need to be consistent within each tax year. So for all your 2025 crypto sales, you'd need to use the same method throughout that year. I'd strongly recommend starting to track your cost basis now before you make any 2025 sales. Create a detailed spreadsheet with purchase dates, amounts, and prices for all your remaining holdings. When you're ready to sell in August, you'll be able to strategically choose which lots to sell to optimize for long-term capital gains. Also consider consulting with a tax professional who specializes in crypto before making your major sales. The potential tax savings from proper planning could easily justify the consultation fee, especially if you're dealing with significant amounts.