Tax

Cost basis is the original value of an investment or crypto asset — what you paid to acquire it — plus any additional costs like transaction or gas fees. It represents your total “starting cost” and serves as the reference point for calculating gains or losses when you sell, trade, or otherwise dispose of the asset.

FIFO, or First In, First Out, is a cost-basis accounting method that assumes the first assets you bought are also the first ones you sell or dispose of.

HIFO, or Highest In, First Out, is a cost-basis accounting method where the coins with the highest purchase price are treated as sold first.

LIFO, or Last In, First Out, is a cost-basis method that assumes the most recently acquired assets are sold or disposed of first.

Long-term capital gains in crypto apply to assets held for more than 12 months before selling, taxed at preferential federal rates of 0%, 15%, or 20% depending on your taxable income level. This tax treatment is significantly more favorable than short-term rates (10-37%) and represents one of the most powerful wealth-building strategies in cryptocurrency investing. Holding crypto for just over one year can save thousands to hundreds of thousands in taxes on large profits. State taxes may also apply depending on your residence.

Short-term capital gains apply to assets held for 12 months or less before selling, taxed as ordinary income at federal rates of 10-37% depending on your total taxable income bracket. This is the same tax treatment as your salary or wages and significantly higher than long-term capital gains rates (0-20%). Active traders who frequently buy and sell crypto pay short-term rates on most profits, which can dramatically reduce net returns. Timing sells to exceed the one-year holding period can save substantial taxes.

Tax loss harvesting is the strategic practice of selling cryptocurrency assets at a loss to offset capital gains and reduce your tax liability. In the United States, crypto losses can offset unlimited capital gains plus up to $3,000 of ordinary income annually, with excess losses carried forward to future years. Unlike stocks, cryptocurrency currently isn't subject to the wash sale rule, allowing you to sell at a loss and immediately repurchase the same asset. Smart investors harvest losses in December before year-end to optimize their tax situation.

Unrealized gains are profits that exist only on paper because an asset has increased in value but hasn’t been sold yet. They can quickly change with market fluctuations and only become realized when the position is closed. Unrealized losses follow the same logic but reflect decreases in value.