LIFO & FIFO - tax angle

Typically LIFO in an inflationary scenario, like in the above example results in lower profits. Whereas the same is true for FIFO in case of deflationary environment.

The tax payable hence is lower in case of LIFO in an inflationary scenario. Taking values from the previous example.

Profit using FIFO = 80

Profit using LIFO = 60

If tax payable by you is 20% on net profit.

Tax paid FIFO = 80 * .20 = 16

Tax paid LIFO = 60 * .20 = 12