Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Which Cost Basis Method Should I Choose?
Old 02-14-2012, 12:38 PM   #1
Recycles dryer sheets
Join Date: Feb 2010
Posts: 384
Which Cost Basis Method Should I Choose?

I received the following message from Vanguard, and I am wondering which method I should choose. Any advice? Thanks.

Want to know how you can save time when selling your Vanguard mutual funds by phone or online? The answer's simple: Choose a preferred cost basis method today.

Because of important regulatory changes now in effect for mutual fund investors, Vanguard—along with other investment firms—must report cost basis details to the IRS for all mutual funds (excluding money market funds) you acquire on or after January 1, 2012, and later sell in taxable (nonretirement) accounts. We'll begin reporting this information to the IRS in 2013 (for the 2012 tax year) and will also continue reporting it to you. (If you've already set your cost basis method, please disregard this e-mail.)

What is cost basis?
Cost basis is generally the price you pay for your shares. The price includes reinvested dividends and capital gains, as well as any transaction fees. Cost basis is used to determine gains and losses on any shares that you sell in taxable mutual fund accounts.

In the past, Vanguard has used one method as its default to calculate cost basis for mutual funds—average cost. Our enhanced cost basis service now offers more accounting methods. So it's important for you to give consideration to which method is the most appropriate for your tax situation before you sell shares. The available methods are:

Average cost. Calculates the average cost per share for each share you own. This remains the Vanguard default for mutual funds.

First in, first out (FIFO). Shares with the oldest acquisition date are sold first.

Specific identification (SpecID). When you sell shares (or lots), you tell us which ones to sell, determining your capital gain or loss.

nico08 is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-14-2012, 12:55 PM   #2
Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 1,731
I typically use average since it's the default and in most cases the tax varies little from the other options. You might use FIFO if you want to tax loss harvest an investment in which you had initially purchased shares at a very high price, then later more shares at a much lower price.

GrayHare is offline   Reply With Quote
Old 02-14-2012, 01:27 PM   #3
Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 3,805
You should use Specific Identification so that you have total control over your gains. However that is also more complex since you have to make a decision about which shares to sell each time you sell.

If you don't want to do that, then I would pick the method that matches what you were doing in the past. That way it will automatically do what you are used to and expecting.
Animorph is offline   Reply With Quote
Old 02-14-2012, 06:31 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
easysurfer's Avatar
Join Date: Jun 2008
Posts: 6,475
IMO, I'd choose average and be done with it, keep it the easiest.

Here's a previous discussion on this very topic:

VG requesting to set cost basis method
Have you ever seen a headstone with these words
"If only I had spent more time at work" ... from "Busy Man" sung by Billy Ray Cyrus
easysurfer is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Average cost basis tax question donheff FIRE and Money 11 01-31-2012 09:07 AM
VG requesting to set cost basis method teejayevans FIRE and Money 23 11-23-2011 05:47 PM
cost basis revisited ripper1 FIRE and Money 4 10-31-2011 08:24 AM
cost basis ripper1 FIRE and Money 20 10-26-2011 07:30 AM
Mutual fund cost basis election form Delawaredave5 FIRE and Money 4 10-06-2011 11:02 AM


All times are GMT -6. The time now is 09:04 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2016, vBulletin Solutions, Inc.