by Arrnica Dayannandan

Created on: February 08, 2009

There is no investor in the world who wants to pay up the same tax twice. However, this is the exactly what most people really end up doing when they do not bother to investigate and implement the cost-basis of their sold stocks and mutual fund investments. The following points illustrate, how by giving its due importance to the concept of cost-basis, you can place yourself in an advantageous position:

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Paying the same tax twice usually happens when you consider reinvesting any or all of the individual dividends and capital gains that you may have reaped, instead of simply pocketing your earnings in cash.

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The more is the number of such transactions on your dividends or capital gains, the greater is the basis or tax value of your investment.

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This basis in turn defines the tax bills you owe for any investments sold.

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Further there is a possibility of this basis affecting any tax loss obtained on capital gains that you may want to use to your advantage.

Here is how you can figure the cost basis of an investment:

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If you do not want to shell out your pockets in overpaying the IRS, over your hard-earned investment gains, then you must maintain a systematic record of all your investment account statements. This will give you the edge in availing precious tax-loss deduction.

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A record of all such possible statements will give a clear trail or pattern of exactly what direct or indirect, supplementary buys, you may have made during the lifespan of your account.

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These statements can be truly useful only when they reflect the real value of any possible fees, charges etc. that you may have made payment of, to obtain or redeem your investments.

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Though these amounts are not exactly directly deductible, the IRS will allow you to add these to your current cost of investments, thereby helping you increase your basis value.

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This will imply that you have to care enough to maintain just one more systematic record in your file cabinet, but it will be worth the effort. This record will project the exact cost basis. This will in turn help you know if you have a capital gain or loss. Accordingly, you might just end up with a little extra cash at the time of tax payment.

Thus you are now aware of the basic steps you might want to ensure to figure out the cost basis of your investment; besides becoming aware of the advantages of doing so.

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