1. What is Cost Basis For Stocks?

Cost Basis (CB) represents the original value of an asset for tax purposes, usually the purchase price adjusted for stock splits, dividends, and return of capital distributions. It is used to determine capital gains or losses when the asset is sold.

2. How Does the Calculator Work?

The calculator uses the Cost Basis formula:

Where:

• \( \text{Purchase Cost} \) — Initial purchase price of the stock
• \( \text{Commissions} \) — Brokerage fees and transaction costs
• \( \text{Dividends} \) — Dividend payments received (if applicable)

Explanation: The formula calculates the adjusted cost basis by adding purchase-related costs and subtracting any returns of capital.

3. Importance of Cost Basis Calculation

Details: Accurate cost basis calculation is essential for determining capital gains tax liability when selling investments. It helps investors understand their true profit or loss from investment activities.

4. Using the Calculator

Tips: Enter the original purchase cost in dollars, any commissions or fees paid in dollars, and dividends received in dollars. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

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

Q2: How do stock splits affect cost basis?
A: Stock splits adjust the cost basis per share. For example, in a 2-for-1 split, your cost basis per share is halved while the number of shares doubles.

Q3: Are reinvested dividends included in cost basis?
A: Yes, reinvested dividends increase your cost basis as they represent additional investment in the stock.

Q4: What if I don't know my exact commissions?
A: Use your best estimate or check brokerage statements. Even small commission amounts can affect your cost basis over time.

Q5: How does cost basis affect long-term vs short-term gains?
A: While cost basis calculation is the same, holding period determines whether gains are taxed as long-term (lower rates) or short-term (ordinary income rates).