Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
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
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.