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Cost Basis Formula:
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Cost basis represents the original value of an asset for tax purposes, usually the purchase price adjusted for stock splits, dividends, and return of capital distributions. For mutual funds, it's crucial for calculating capital gains or losses when shares are sold.
The calculator uses the average cost basis formula:
Where:
Explanation: This calculation provides the average cost per share, which is essential for determining taxable gains or losses when selling mutual fund shares.
Details: Accurate cost basis tracking is essential for tax reporting, investment performance analysis, and making informed selling decisions. It helps investors minimize tax liabilities and understand their true investment returns.
Tips: Enter the total amount invested in USD and the total number of shares owned. Both values must be positive numbers. The calculator will compute the average cost per share.
Q1: What Is The Difference Between Average Cost Basis And Specific Identification?
A: Average cost basis calculates an average price per share across all purchases, while specific identification allows you to choose which specific shares to sell, potentially optimizing tax outcomes.
Q2: How Often Should I Calculate My Cost Basis?
A: Update your cost basis with each new purchase and before making any sales decisions. Most brokerages provide this information automatically.
Q3: Does Cost Basis Include Fees And Commissions?
A: Yes, for tax purposes, commissions and fees paid to acquire the investment should be included in the cost basis calculation.
Q4: What Happens To Cost Basis After Stock Splits Or Dividends?
A: Stock splits adjust the cost basis proportionally. Reinvested dividends increase both the total cost and number of shares, requiring recalculation.
Q5: Can I Change My Cost Basis Method After Selecting One?
A: For mutual funds, once you select an average cost basis method, you typically cannot change it without IRS approval. Consult a tax professional for specific situations.