1. What Is Cost Basis?

Cost basis represents the total original investment in an asset, including purchase price and associated costs. For stocks, it's crucial for calculating capital gains or losses when selling.

2. How Does The Calculator Work?

The calculator uses the cost basis formula:

Where:

• \( \text{Purchase Price} \) — Price paid per share (dollars)
• \( \text{Shares} \) — Number of shares purchased (count)
• \( \text{Fees} \) — Transaction fees and commissions (dollars)

Explanation: This calculation determines the total amount invested in a stock position, which is essential for tax reporting and investment analysis.

3. Importance Of Cost Basis Calculation

Details: Accurate cost basis tracking is vital for calculating capital gains taxes, determining investment performance, and making informed selling decisions.

4. Using The Calculator

Tips: Enter purchase price in dollars per share, number of shares as whole numbers, and any transaction fees in dollars. All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: Why is cost basis important for investors?
A: Cost basis determines taxable gains or losses when selling investments and helps track investment performance over time.

Q2: What fees should be included in cost basis?
A: Include all transaction costs like brokerage commissions, transfer fees, and any other direct costs associated with the purchase.

Q3: How does cost basis affect taxes?
A: When you sell stocks, the difference between sale price and cost basis determines your capital gain (taxable) or loss (potentially deductible).

Q4: What if I bought shares at different prices?
A: For multiple purchases, you can use specific identification, FIFO, or average cost methods to calculate cost basis for tax purposes.

Q5: Is cost basis adjusted for stock splits?
A: Yes, cost basis should be adjusted for corporate actions like stock splits, dividends, and mergers to maintain accurate records.