Calculating Cost Basis Of Stock

Cost Basis Formula:

\[ \text{Cost Basis} = \text{Purchase Price} + \text{Commissions} - \text{Returns} \]

Purchase Price (currency/share):

currency/share

Commissions (currency):

currency

Returns (currency):

currency

Cost Basis (currency/share):

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1. What Is Cost Basis?

Cost basis represents the original value of an asset for tax purposes, typically the purchase price adjusted for stock splits, dividends, and return of capital distributions. It is used to calculate capital gains or losses when the asset is sold.

2. How Does The Calculator Work?

The calculator uses the cost basis formula:

\[ \text{Cost Basis} = \text{Purchase Price} + \text{Commissions} - \text{Returns} \]

Where:

\( \text{Purchase Price} \) — Original price paid per share
\( \text{Commissions} \) — Brokerage fees and transaction costs
\( \text{Returns} \) — Any returns of capital or distributions

Explanation: The formula calculates the adjusted cost basis per share, which is essential for accurate tax reporting when selling investments.

3. Importance Of Cost Basis Calculation

Details: Accurate cost basis calculation is crucial for determining capital gains taxes, making informed investment decisions, and maintaining proper financial records for tax compliance.

4. Using The Calculator

Tips: Enter purchase price per share in currency, commissions paid in currency, and any returns received in currency. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why is cost basis important for investors?
A: Cost basis determines the taxable gain or loss when you sell an investment, directly affecting your tax liability.

Q2: What happens if I don't know my exact cost basis?
A: The IRS may assume a cost basis of zero, resulting in higher taxable gains. Always keep accurate records of purchase prices and adjustments.

Q3: How do stock splits affect cost basis?
A: Stock splits adjust your cost basis proportionally. For example, in a 2-for-1 split, your cost basis per share is halved.

Q4: Are dividends included in cost basis?
A: Regular dividends are not included in cost basis, but return of capital distributions reduce your cost basis.

Q5: What's the difference between FIFO and specific identification methods?
A: FIFO assumes you sell the oldest shares first, while specific identification allows you to choose which shares to sell, potentially optimizing tax outcomes.