# Calculate Cryptocurrencies Tax By Fifo

The so-called First-in, First-out method (FIFO) and the Last-in, First-out method (LIFO) may already be known to some investors from commercial law.

The FIFO-method assumes that the first goods purchased are also the first goods sold.

The LIFO method, on the other hand, assumes that the last goods purchased are the first goods sold. Both methods can lead to considerably different results.

Assuming a crypto dealer has bought a bitcoin for EUR 1,000.00 in January. In November, he buys a second bitcoin for EUR 6,000. In December he sells one bitcoin for EUR 10,000. When applying the FIFO method, the dealer would have made a profit of EUR 9,000.

When applying the LIFO method, the profit would have amounted to only EUR 4,000.

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If, on the other hand, the first bitcoin had been purchased in November of the preceding year already, application of the FIFO method would have resulted in the sales profit being totally exempt from sales tax due to the retention period of one year.

As a consequence, the determination of the most beneficial method always depends on the individual case.

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Contrary to commercial law, the relevant provision of § 23 of the German Income Tax Law (Einkommensteuergesetz; "EStG") assumes that that it is possible to individually allocate every good sold.

The law explicitly requires application of the FIFO method for the sale of foreign currency amounts only.

As cryptocurrencies are, by their nature, quite similar to foreign national currencies, a corresponding application of the FIFO method may seem appropriate. In the meantime, the fiscal authorities of Hamburg have endorsed this view.

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However, in 1993 the German Federal Fiscal Court (Bundesfinanzhof; "BHF") decided that, in the absence of a legal directive, the purchase costs must be calculated at average values (BFH of 11/24/1993, X R 49/90, Federal tax Gazette II 1994, 591).

In the above example, the average purchase price of the bitcoin would be EUR 3,500.

The taxable profit would hence be EUR 6,500. Only goods that are sure to have been sold outside the speculation period are taken into account for the purposes of the average method. In this regard it is similar to the FIFO method.

For the time being it is still unclear whether or not the above ruling will be applicable to cryptocurrencies.

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At the time, the legislator reacted and prescribed by law that the FIFO method had to be applied to foreign currency sales. Regarding cryptocurrencies, at least a corresponding application could come to question.

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The fiscal authorities of Hamburg are presently using the FIFO method.

As there are presently no other rulings or administrative orders, you should review in each individual case, which calculation method can be used to determine your profits.

Our tax experts for cryptocurrencies will be pleased to discuss all possible structuring options with you to work out the best possible tax solution for you.

Our experienced team for all issues concerning the taxation of cryptocurrencies consists of:

We will be pleased to answer your questions. You can reach us most easily by e-mail at ([email protected]) or, of course, by phone (069 / 76 75 77 80).