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1.
The double-category averaging method for calculating cost basis is only applicable if _______.
You have both short- and long-term gains. In this method, shares are divided into short-term and long-term gains and are then averaged for cost basis. If you have no short-term gains, you're basically using the single-category averaging method--you have only long-term gains.
2.
What is cost basis?
The price you paid for a security, including commissions and other expenses. You use cost basis, the price you paid for a security, to determine your profit or loss when you sell shares.
3.
Calculating cost basis according to different methods results in _______ among the various methods.
Varying differences. The differences will vary based on a number of factors, and no easy judgment can be made without them.
4.
In the single-category averaging method for calculating cost basis, _______.
You divide the total cost you paid for your shares by the total number of shares you own and get an average cost basis for each share. If you sell the first shares you bought, you're using FIFO. If you ask the fund to sell shares you paid the most for but have held for at least one year, you're using the specific-shares method.
5.
Which method for calculating cost basis is best?
It depends on the situation. While FIFO--first in, first out--is the most basic method, the other methods can save you more money in certain situations, depending on your purchase prices, how long you've held the shares, and the current share price.
