There are three main inventory costing principles in accounting: First-in-First-Out (FIFO), Last-in-First-Out (LIFO), and the Weighted Average method. The IRS allows you to elect among one of these three costing methods, and they each have their own advantage dependent on your investment strategies.
When deciding on which methodology to use for your fund, there are many things to consider.
- What is the trading strategy (long vs short)?
- Is minimizing gains/losses now, as opposed to later, important to the fund?
- How long does the fund want to defer gains/losses?
Each disposal methodology has its pros and cons, but proper planning can help check the box for the items most important for your fund.
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For more information regarding FIFO, LIFO or the Weighted Average Method and how this can affect your fund, contact Steve Vlasak.
