An investor has the option to choose a tax method that he/she wishes, such methods include FIFO, LIFO, highest cost, lowest cost, specific loss, average cost, etc. The investor may choose the tax method prior to purchasing a security.
FIFO
- Pro – could be a long-term capital gain
- Con – usually result in a higher gain assuming the market is going upward
LIFO
- Pro – usually result in a smaller gain in an upward price market
- Con – could be a short-term gain
* Unless the investor chooses to use a method, FIFO is defaulted to be used by the IRS.