After you run your tax calculation, you will see on your Taxes page that the calculation is being processed based off the cost basis method you currently have selected - LIFO, FIFO, HIFO, or AVG accounting. New accounts are set to HIFO (Highest In, First Out) as the default cost basis method.
The tax professionals we consult strongly recommend FIFO as the more conservative cost basis accounting method. You need to stick with one tax treatment for all your years of tax returns. You cannot switch from LIFO to FIFO each year.
An Overview of FIFO, LIFO, and HIFO:
First In, First Out (FIFO) - cost basis is based on the OLDEST purchase first
Last In, First Out (LIFO) - cost basis is based on the NEWEST purchase first
Highest in, First Out (HIFO) - cost basis is the HIGHEST value purchase first
Average Cost Basis (AVG) - cost basis is an average of the purchases prices
Step-by-Step Instructions to Change Your Cost Basis Method:
Step 1: Click the hardware button in the top right corner and then click on Settings.
Step 2: Select Tax Settings from the bar on the left-hand side.
Step 3: Using the drop-down menu, select the cost basis accounting method you want used in your account. Once you've made that selection, click Save.
