How To Specifically Change Cost Basis Accounting Methods From FIFO To HIFO

[joe-87]

I need a direct answer to these ALL these questions. Please dont add your lackluster support articles because they will not answer this question and please answer each question carefully to reduce back and forths!

It is a simple question. If I am tracking all my crypto transactions on a CSV file manually, how do I tell turbotax online to use the HIFO method of accounting not FIFO to calculate my gains or losses? 

I spoke to 3 turbotax professionals and one of them said to change it in settings. But where specifically?

I need screenshots to show me where to change this setting.

For clarity, does Turbotax automatically calculate gains and losses based on FIFO? Am I required to perform the FIFO or HIFO calculation in my spreadsheet before I upload it to Turbotax online?

Lastly, do I need to let the IRS know about the change and will it raise the likelihood of an audit?

Please anyone help. I spent days not hours trying to figure this out!

[Mike9241]

If you are changing from FIFO to HIFO for crypto transactions, you need to file Form 3115 with the IRS to request the change. This form is required for any changes in accounting methods and requires IRS approval. completing the 3115 can be complicated. failure to file makes the change invalid which could create future problems with the IRS. 

can't answer your other questions. 

[joe-87]

What if my FIFO was the same as HIFO in 2024? In other words I had only one buy transaction with some sell transactions. How would the IRS know if I used FIFO or HIFO if it is not shown on my tax return nor did I tell Turbotax which method I plan on using at the time of inputting my tax data?

If questioned, can I just say I used HIFO in 2024?

[fanfare]

For stocks and options, you cannot select after the fact.

You must inform your broker what rule to use before initiating the transaction.

For crypto I don't know what record keeping and reporting your service provides i,e. will it be in FIFO order.?

If you did not get a 1099-B,  you are doing your own ordering with a csv file, and nothing can stop you from doing it the way you want.

We're all on the honor system here.

@joe-87 

[joe-87]

Thanks for the response.

1099-B are not accurate because the exchanges dont know my cost basis. I could have bought crypto on a cold or hot wallet multiple times. Then I transferred the balance PARTIALLY to the exchange, then sold it on the exchange. How would the exchange possibly know my original cost basis under FIFO or HIFO if I am not transferring the entire balance from my wallet?

The 1099-B will not report accurately my gains or loss and cost basis. This is why I need to rely on manual records.

I thought there was a way to tell Turbotax after or before you upload the csv, which accounting method you are using. Then Turbotax will look at all your transactions and automatically adjust the cost basis based on the method chosen meaning I dont need to perform this calculation to properly account for gains and losses and the remaining adjusted cost basis balance to apply for the following years.

Turbotax should handle this workload for me based on discussions with your team but no one is able to transparently show me where and what to update in my settings.

Help anyone?

[DianeW777]

TurboTax will not provide the accounting method you are looking for. As noted previously you must designate the investments being sold before the fact, meaning before they are sold, or it will always be first in-first out (FIFO) under tax law.

The 1099-B will not be able to provide your correct cost basis. As you indicated, only you have the actual cost basis of the investment you sold.

If you did follow the steps in the FAQ shown here - 'How do I upload my CVS file of my crypto transactions?', and the cost basis is not correct, you will need to adjust it to the correct amount for each transaction. The CVS file you upload should include only the transactions you actually sold in 2024.

You can choose to enter 'summary' sales versus each individual sale. Your brokerage statements should include a summary of your transactions, grouped by sales category, for example, Box A short-term covered or Box D long-term covered.

Holding Periods:

• Long term is a holding period of more than one year (one year plus one day) and receives capital gain tax treatment (0%, 10%, 15%, 20% depending on your regular rate of tax)
• Short term is a holding period of one year or less and receives ordinary gain tax treatment (your regular rate)

@Joseph-karout