Which accounting method saves the most tax?

In a rising market, HIFO usually minimizes immediate tax by selling the highest-cost coins first. But HIFO often produces short-term gains taxed at higher rates; sometimes FIFO with long-term coins beats it. Modern tax software will calculate every method and pick the optimal one each year — let it.

Do I need cost basis for coins I received as airdrops?

Yes — and you already have it. Cost basis equals the fiat value on the day you received the airdrop, which is also the income amount you reported. Forgetting this means double-taxation when you eventually sell.

What if I lost the records from an exchange that no longer exists?

Reconstruct as best you can: bank deposit records, screenshots, email confirmations, blockchain transactions from withdrawal addresses. If reconstruction is impossible, document your good-faith methodology in writing. Default-to-zero is the worst outcome and the most likely default if you do nothing.

Are gas fees part of cost basis?

Yes for purchases (added to basis) and yes for disposals (deducted from proceeds). Gas paid on failed transactions is typically deductible as an investment expense — though specific treatment varies by jurisdiction.

How do I handle cost basis for tokens received from a fork?

Most jurisdictions treat the new tokens as ordinary income at the fair market value on the day they became transferable in your wallet. That value also becomes their cost basis. Bitcoin Cash from the 2017 BTC fork is the canonical example.

Should I switch tax software mid-year?

Generally no — they calculate basis differently in edge cases, and switching can cause silent inconsistencies. If you must switch, run the new tool against the same historical data and reconcile against your previous tax filings before relying on it.

How to Track Crypto Cost Basis | Crypto Market Watch

A practical guide to tracking crypto cost basis. Learn the difference between FIFO, LIFO, and HIFO, how to handle DeFi and self-custody transfers, and which tools to use for accurate tax reporting.

Overview

This article is part of Crypto Market Watch's free crypto learning library. It explains the topic in plain language so beginners and experienced users alike can quickly understand the concept and how it applies to real cryptocurrency markets.

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