1. What is Cost Basis Calculation?

Cost basis calculation determines the original value of an investment for tax purposes when selling mutual funds. It helps calculate capital gains or losses for tax reporting.

2. How Does the Calculator Work?

The calculator uses the cost basis formula:

Where:

• \( CB \) — Cost Basis ($)
• Average Cost — Average purchase price per share
• Specific Share — Individual share purchase prices
• Number of Shares — Total shares being sold

Explanation: The equation calculates the total original investment amount based on either average cost method or specific share identification method.

3. Importance of Cost Basis Calculation

Details: Accurate cost basis calculation is crucial for determining capital gains taxes, tracking investment performance, and making informed selling decisions for mutual funds.

4. Using the Calculator

Tips: Enter average purchase price in dollars, number of shares being sold, and select calculation method. All values must be valid (price > 0, shares > 0).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between average cost and specific share methods?
A: Average cost uses the overall average purchase price, while specific share allows you to identify which specific shares you're selling (FIFO, LIFO, or specific identification).

Q2: When should I use each method?
A: Average cost is simpler and commonly used. Specific share methods can provide tax advantages by strategically selecting which shares to sell.

Q3: Are there tax implications for choosing different methods?
A: Yes, different methods can result in different capital gains calculations, which affect your tax liability. Once chosen, you must consistently use the same method.

Q4: How does this apply to mutual fund sales?
A: Mutual funds often use average cost method by default, but investors can elect specific share identification for more control over tax outcomes.

Q5: What records do I need to maintain?
A: Keep records of all purchase dates, prices, number of shares, and dividend reinvestments to accurately calculate cost basis over time.