LIFO (Last In, First Out)

LIFO—Last In, First Out—flips the default on its head. Instead of selling your oldest shares first (like FIFO), LIFO assumes you're selling the ones you bought most recently. In certain situations, this can meaningfully lower your tax bill.

Picture this: you've been buying a stock over several years, and the price has climbed steadily. Your newest shares cost the most. If you sell using LIFO, those higher-cost shares go first, which means a smaller gap between what you paid and what you sold for—and less tax. The trade-off is that these recent purchases are more likely to be short-term, so any gains get taxed at your ordinary income rate instead of the lower long-term rate.

Most brokerages default to FIFO, so switching to LIFO requires you to explicitly tell them. For crypto, LIFO is an option, but you'll need to keep careful records since exchanges don't typically track lots this way.

LIFO works best when your recent purchase prices are close to (or above) the current sale price, generating small gains or even losses regardless of the holding period. The short-term tax rate matters less when the gain itself is tiny.

In a falling market, LIFO really shines for tax-loss harvesting. Your most recent purchases—made at higher prices—generate the biggest losses when sold at today's lower prices, maximizing your tax deduction.