Although you may purchase more than one share of stock at a time, you must calculate cost basis per-share, rather than as a lump sum. Cost basis is the foundation of the taxable gain or loss that results from your sale of the stock. Because you may not sell all your shares of stock at the same time, your per-share basis is used to determine the tax treatment of the transaction. If you purchase shares on multiple dates, your initial price-per-share investment may differ, so for the purpose of calculating your cost basis for stock, evaluate your basis for each purchase date separately.
1. Determine the purchase price for your shares of stock. This is the amount per share you pay at the time of purchase, multiplied by the number of shares you buy. If you pay broker commissions to perform transactions, or pay fees to transfer or record your shares during the time you own the stock, add the amount of these expenses to your purchase price. The result is your initial cost basis.
2. Calculate the value of nontaxable dividends or stock-split shares you receive as a result of owning the stock. Nontaxable dividends include dividends you receive that are reinvested in a municipal or nontaxable investment. Subtract the value of nontaxable dividends from your cost basis. If stock you own is split, your overall cost basis does not change, but your basis per share is reduced. For example, if you own 50 shares of stock that each cost $10, your basic cost basis is $500 and each share of stock cost $10. If the stock is split two-for-one, you now own 100 shares of stock, but since you only invested $500, each share is now valued at $5. Subtract any stock split values from your split-shares accordingly.
3. Calculate the value of non-dividend distributions you receive. Non-dividend distributions are not declared or paid from the profits of the company you invest in. Because this type of distribution is not paid from profits, it is considered a return of capital. A return of capital distribution is not taxable, but the amount returned to you reduces your initial investment expense. Subtract the value of your non-dividend distributions from your cost basis. The result is your actual cost basis.
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