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Zecco.com » General Investing » Tax Matters » LIFO or FIFO
Last post 09-30-2008, 4:07 AM by DPUMA8. 9 replies.
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  •  09-11-2008, 10:23 PM 38058

    LIFO or FIFO

    Reply Quote
    Remind me, when you sell part of your holding, is it LIFO or FIFO? Do you get to choose at tax time?

  •  09-12-2008, 9:29 AM 38101 in reply to 38058

    Re: LIFO or FIFO

    Reply Quote
    emobrien:
    Remind me, when you sell part of your holding, is it LIFO or FIFO? Do you get to choose at tax time?


    For day trading trade (buy and sell within the same day), it's LIFO.  Once you hold them over night, they become FIFO.   As for reporting them to the IRS, sure, you can choose LIFO, FIFO, or a combination of both.   I recommend that you use only FIFO; keep it simple to avoid setting off an audit flag.   By laws, the brokers are required to report all sells to the IRS.   It's up to you to tell the IRS when and how you bought your stocks, options, or whatever.

  •  09-12-2008, 10:34 AM 38106 in reply to 38058

    Re: LIFO or FIFO

    Reply Quote
    The default method is FIFO.  The only alternative is specific identification.  LIFO is not available.  Specific identification is available if you follow the proceedures outlined in Reg 1.1012-1 or see Publication 550 for more details.

  •  09-12-2008, 2:06 PM 38124 in reply to 38106

    Re: LIFO or FIFO

    Reply Quote
    My answer was based on my real life experience here at Zecco; other brokers or whatever publication may say it differently.   Like I said, LIFO is available at Zecco when dealing with day trade transaction.   For example, if you are holding XYZ before today, then you buy x more shares of XYZ today, then before the end of today, you sell x shares of XYZ, it will be LIFO and this is a fact, not speculation.

  •  09-20-2008, 1:47 AM 39029 in reply to 38058

    Re: LIFO or FIFO

    Reply Quote
    I am studying for my CPA licensing and I do taxes for a CPA.  Pretty much your schedule D on your tax return is extremely hard for the IRS to verify things.  All they get is a dollar amount of your total sales for the year.  The IRS doesn't get the symbols of what you bought, how many shares, your buying price, or your selling price.  All they get is a total number. 

    So really it is up to you.  LIFO makes the most sense tax wise for you because holding a stock for more than 1 year will get you really low tax rates on your gains.  For the next 3 years, if your income + stock gains - exemptions - itemized deductions - standard deduction is below $65,100, then your LT gains will be 0%! 

    So the answer is................................. the IRS has no idea about your stock buying and selling.  They just have a total sales price and your sells better match what they have.

  •  09-20-2008, 9:27 AM 39080 in reply to 39029

    Re: LIFO or FIFO

    Reply Quote
    DPUMA8:
    I am studying for my CPA licensing and I do taxes for a CPA.  Pretty much your schedule D on your tax return is extremely hard for the IRS to verify things.  All they get is a dollar amount of your total sales for the year.  The IRS doesn't get the symbols of what you bought, how many shares, your buying price, or your selling price.  All they get is a total number.


    To help you with your studying for CPA,  I will give you a hint:  Schedule D-1.   If you just do schedule D without schedule D1, you will get a nice letter from the IRS asking for explaination of your stock sell transactions.  Btw, there are two forms for Schedule D-1:  the short form and the continuous form. 

    PS:  I'm not a tax professional.  I'm just someone who have been doing my own taxes all my life.  My answer is based on my life experience.  Yes, I did get a letter from the IRS three years ago, becuase I was too lazy to do the Schedule D1.   I usually have at least 700 stock transactions per year.  Nowadays, thanks to Quicken software, my Schedule D1 takes only few minutes to complete.

  •  09-22-2008, 12:56 AM 39222 in reply to 39080

    Re: LIFO or FIFO

    Reply Quote
    Hmm, I've been using this accounting scheme called FILO at work and it's been working for me because I am still employed. Actually, our company expects it from everyone. It's called FILO - first in, last out. They want you to be the first one in the office (at the crack of dawn) and then be the last one out; essentially you are working in the office from dawn to dusk. 10 or 15 minutes breaks? Hahaha, you must be joking! Forget this FIFO of LIFO stuff, if you like your job, practice FILO.


    And especially in these dire economic times, we all should practice FILO because hey let's face it, if we don't even at least try to follow FILO, we'll be laid off and we won't have a job.


    Want to keep your job? Use the FILO method, it's the hottest flavor right now.




  •  09-26-2008, 2:00 PM 39998 in reply to 39080

    Re: LIFO or FIFO

    Reply Quote
    Schedule D-1 is a continuation sheet of Schedule D so when I mentioned schedule D, that includes D-1.  Yes, if you just list a total on Schedule D you will get a notice from the IRS.  With our software, you enter in the basis and selling price of all stocks and it generates the schedule D-1 automatically.


    My point was that it is very difficult for the IRS to VERIFY what your purchase prices were even on the schedule D-1 because all the IRS gets is a form telling them of your stock sales.  They would need to somehow get your account information to verify.

    Thanks for the awesome hint that surely will help me pass the exam.

  •  09-26-2008, 7:47 PM 40033 in reply to 39998

    Re: LIFO or FIFO

    Reply Quote
    Actually, you can file Schedule D without Schedule D-1.  It said so on Schedule D's instruction.  Of course, there is a catch...you need to provide support document such as form 1099* from your brokers.  If your total on Schedule D-1 doesn't match with form 1099*, they got you.  Just as long as the total on your Schedule D-1 is the same as form 1099*, the IRS doesn't care if you use LIFO or FIFO or whatever on your Schedule D-1.

    Btw, I have survived 2 official audits during the last 2 decades.  For some reasons, the IRS doesn't trust me.   In both cases, they owed me with interests.   In fact, I collected more interests from the IRS than from my actual investment.  That was just so sad.

  •  09-30-2008, 4:07 AM 40319 in reply to 40033

    Re: LIFO or FIFO

    Reply Quote
    Hahaha!  Funny that they audited you and owed you interest in the end.  Just to keep the IRS off of the client's back, we always send out the D-1 too.  I think that if you don't send it out then you are inviting yourself for an audit.
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