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This is my first year completing a tax return that will have gains/losses do to the sales stocks. Does it matter if you use the moving average method or the lot for lot method for calculating gains/losses? Can you switch calculation methods in future years? How, if at all do commissions enter into the equation?
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caputi writes:

This is my first year completing a tax return that will have gains/losses do to the sales stocks. Does it matter if you use the moving average method or the lot for lot method for calculating gains/losses? Can you switch calculation methods in future years? How, if at all do commissions enter into the equation?

I reply:

This sounds like a job for TMF Investment Tax Guide. (You're welcome, Roy.) These are reasonably basic questions that are answered there, along with other questions you might not realize you need to ask.

Assuming that you sold stocks, rather than mutual funds, you probably don't have a choice. Your only two options are FIFO and specific identification. But to use specific identification, you have to identify the shares sold, in writing, at the time of sale. Assuming that you didn't do that, your only option is FIFO.

If you're actually talking about mutual funds, then you have the additional options of single-category and double-category average cost basis. It matters which you choose, but the only way to know for certain which is better is to run the numbers. Generally, if your holdings have steadily increased in value, though, logic tells me that FIFO must be the worst of all possible worlds, because you're selling the shares with the lowest basis, and therefore realizing the maximum possible gains.

Once you select a method for a specific security, you're stuck with that method until your position in that security is completely closed. However, you can use different methods for different securities at the same time. In other words, you can account for Apple using FIFO and Microsoft using specific identification.

Commissions enter the equation at both ends. You add them to the purchase price to determine your cost basis, and you subtract them from the sales price to determine your proceeds. As you probably know, subtracting your cost basis from your proceeds yields your capital gain. Good luck! --Bob
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[[This is my first year completing a tax return that will have gains/losses do to the
sales stocks. Does it matter if you use the moving average method or the lot for
lot method for calculating gains/losses? Can you switch calculation methods in
future years? How, if at all do commissions enter into the equation?]]

You need a LOT of education. You might consider beginning by ordering the TMF Investment Tax Guide. It'll give you a very nice overview of taxes and investments...and will answer all of the questions (and more) that you might have.

If that doesn't ring your bell, you can always read more about these issues in IRS Publication 550 that you can download/read at the IRS web site.

Or you can visit the Taxes FAQ area for some various tidbits on various investing issues.

TMF Taxes
Roy

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[[This sounds like a job for TMF Investment Tax Guide. (You're welcome, Roy.)]]

LOL, Bob...

Thanks for the plug. I couldn't have said it better myself...but I did.

Thanks for the chuckle of the day!!!

TMF Taxes
Roy
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