Plain English
Cost basis is the original price you paid for an asset, used to calculate capital gain or loss when you sell. If you buy Bitcoin at $20,000 and sell at $50,000, your cost basis is $20,000 and your taxable gain is $30,000.
How it actually works
Cost basis tracking gets complicated with multiple purchases at different prices. Common methods: FIFO (first in, first out — assumes you sell oldest coins first), LIFO (last in, first out), HIFO (highest in, first out — minimizes current-year gain), specific identification (you choose which specific lot you are selling). The method must be applied consistently. For crypto, specific identification can dramatically reduce taxes if applied correctly.
What it means for you
For members with multiple purchases over time, cost basis tracking is the operational discipline that determines your actual tax bill. Get it wrong and you may pay tax on phantom gains. Get it right and you can defer or minimize substantially.
We walk through cost-basis tracking tools, the practical use of specific identification for crypto, and the coordination with your CPA to ensure consistent methodology across years.
Educational content only. Not investment, tax, or legal advice.