FIFO Accounting

First-In, First-Out (FIFO) is an accounting method that assumes the first assets purchased are the first ones sold. This method is often the default requirement for tax reporting in many jurisdictions.

When calculating capital gains, FIFO matches the sale price against the cost of the earliest acquired units. In a rising market, FIFO generally results in higher taxable gains because the earliest acquired assets often have the lowest cost basis.

Conversely, in a falling market, it might result in lower gains or higher losses. Understanding the implications of FIFO is critical for tax planning, especially for long-term investors who have accumulated assets over several years.

It requires keeping precise records of purchase dates and costs for all assets held. While it simplifies the calculation process, it may not always be the most tax-efficient method compared to others like specific identification.