Why TokenTax's Tax Minimization Is Misleading
HIFO, LIFO, FIFO in Crypto
When you trade crypto, the IRS treats each sale as a taxable event. But if you’ve bought the same asset multiple times at different prices, which units are you selling first? That’s where HIFO, LIFO, and FIFO come in:
FIFO (First In, First Out): The first coins you bought are considered sold first. This often results in higher taxable gains if prices have generally risen over time.
LIFO (Last In, First Out): The most recent coins you bought are sold first. This can reduce gains in some market conditions but may trigger short-term capital gains tax (which is higher than long-term).
HIFO (Highest In, First Out): You sell the highest-cost coins first, minimizing your gains now. On paper, this sounds like the ultimate tax minimization strategy—but it may not actually save you any money in the long term.
If you want to learn more, we have a full in-depth breakdown here on HIFO vs FIFO vs LIFO and the pros and cons of each.
Why TokenTax’s “Tax Minimization” Pitch Is Misleading
TokenTax mostly pushes “HIFO tax minimization” mixed with a bit of Spec ID (ex. use long or short term buys where applicable to minimize tax) like it’s a magic bullet—save on taxes this year, keep more money in your pocket.
The reality? It’s just deferring taxes, not eliminating them. You’re front-loading the sale of high-cost coins and pushing low-cost coins into the future. Eventually, you will sell those low-cost coins, and when you do, you may be hit with much higher gains. So it may be that nothing is really being minimized.
So while HIFO and different algorithms can be helpful, it's hard to say if it is truly minimizing tax over the long term. And TokenTax's specific flavor creates more of an accounting headache for you, as TokenTax uses a mixture of HIFO + Spec ID that makes everything a nightmare in the case of an audit.
So overall, you are probably better just selecting HIFO or LIFO or FIFO and sticking with it to not create more headache for yourself. And better yet, make sure to use Awaken (here is a breakdown of what makes us better than TokenTax).
The best way to minimize taxes is through tax planning, which you can use our "Performance" tab to gain insights and follow our crypto guide on tax loss harvesting. And remember wash sales are allowed in crypto (if you're in the US), so you can take advantage of that to temporarily reduce your capital gains as well.
Bottom line:
HIFO, LIFO, FIFO are just accounting methods—they don’t magically erase taxes. If a crypto tax service is selling “minimization”, it's probably a gimmick. At Awaken, we’d rather help you make smart, informed decisions now, so you’re not stuck paying for last year’s “savings” later.
