I have made some capital gains and losses in Bitcoin. As an amateur, I thought I could use cost-averaging as the accounting method.

Investopedia says that I should use FIFO, LIFO or specific lots.

So I've been filing taxes since 2014 using the wrong accounting method. I am actually happy to change to FIFO because it would save me several thousand dollars.

Am I correct in assuming that I need to refile all my taxes for 2014, 2015, and 2016?

If so, what form(s) do I need to do this?

I think this affects my federal, state (PA), and city returns. Philadelphia has a School Income Tax for short term capital gains earned in less than six months. The impact on city and state taxes is relatively small (probably $100 - $200).

I slightly enjoy knowing enough to fill out my own returns - so I would appreciate any assistance that you might provide.

Am I correct in assuming that I need to refile all my taxes for 2014, 2015, and 2016?=======>I guess it depends So you used cost-averaging as the accounting method and have been filing returns since 2014 by using cost averaging?? Then that is OK you may apply FIFO method on the year return when you changed to FIFO method. Matterof fact the IRS hasn't specified that you can or can't. I mean say with stocks you could elect to use specific identification, i.e., LIFO, before you sold the stock or FIFO or whatever you want, , but that doesn't exist in Bitcoin exchanges.Opinions differ, but most are suggesting you only use FIFO, since that is the IRS preferred method. If in the future they say you cannot use LIFO/cost averaging , you would have to recalculate, amended your returns and potentially pay more taxes. They'll never say you couldn't use FIFO yet.
Unless they actually come up with a statement, it isn't likely to be settled until the first appeals against audits go through. Could take a while. So if you do use it, be aware of the consequences.





If so, what form(s) do I need to do this?======>as mentioned above; In 2014, the IRS published a notice clarifying that all crypto-currencies should be treated as property for tax purposes. Therefore any gains from exchanging such property would be considered capital income, and taxed as capital gains.Capital gains, like stocks and shares, are reported on your 1040 tax form as part of Sch D/form8949 . However, unlike stocks and shares,they don't have a broker working out all the figures and providing us with a 1099 form. Current Bitcoin exchanges, such as Coinbase and Circle, you do not report account information to the IRS and so you are left to calculate and report these figures yourself.Working out your capital gains can vary a lot depending on how and when you sold or spent your Bitcoins.


I think this affects my federal, state (PA), and city returns. Philadelphia has a School Income Tax for short term capital gains earned in less than six months. The impact on city and state taxes is relatively small (probably $100 - $200).=====>as mentioned above; for more professional help you need to contact anIRS Enrolled Agent/A CPA doing taxes in your local are for your fed/state returns.

Thanks.

I think I might have a problem changing to FIFO as my Bitcoin balance never fell to zero during 2014-2016. So if I changed the accounting method during the middle it would artificially increase or decrease my capital gains (I haven't tested it).

So I want to apply FIFO from the beginning and refile the taxes.

Would I be allowed to change my accounting method if the only reason to do so was to reduce my taxes? Or do I have to have made an error to do so?

It looks like I should use the 1040x form along with the appropriate schedules.

I think I might have a problem changing to FIFO as my Bitcoin balance never fell to zero during 2014-2016. So if I changed the accounting method during the middle it would artificially increase or decrease my capital gains (I haven't tested it).========>Exactly; FIFO artificially increases your CGs.

So I want to apply FIFO from the beginning and refile the taxes.====>it is up to you.
However NOTE; if your biz status is a corp that has adopted an accounting method , then you cannot change that method simply by amending prior-year income tax returns; IRS permission is required to change methods . Corps must request a change even if they are changing from an improper method. Usually, corps can obtain permission to change accounting methods if there are valid business reasons for making the change. However, the IRS will not grant the change if the proposed method does not clearly reflect income.

Would I be allowed to change my accounting method if the only reason to do so was to reduce my taxes? Or do I have to have made an error to do so?======asfaras I know, as you can see, it's best to employ the same system consistently so your financial statements can be equitably compared from year to year to determine income and profitability. However, you can change your biz?s accounting method for you needs, if you find it necessary, after your first year in business, but you must ensure you transition correctly.

It looks like I should use the 1040x form along with the appropriate schedules.==>it is up to you; of course you can change the basis reported by the broker, even if the broker is reporting the basis to the IRS. Brokers are not infallible. In the overall, you under reported your 2014-16 income and will correctly report your gain with your adjustment, so you are in a net under reported situation and it's up to you if you want to amend returns. Unless you are talking about an absolute ton of money I expect the IRS will never question your change. They probably only see a few million changes every tax year.

I'm not filing as a business.

The exchanges (aka brokers) aren't filing any reports on my capital gains/losses and it would be very difficult for them to know whether I'm making any gains as I've been using several exchanges.

I track everything in a rather complex spreadsheet.