Cost Basis Reporting Terminology - Part 2 - club_cafe - bivio Investment Clubs

Cost Basis Reporting Terminology - Part 2

Laurie Frederiksen on

Here are some more terms you will want to familiarize yourself with to better understand the forms you'll be handling when you prepare your investment club taxes:

Tax Lot
If you have purchased a stock at several different times, including purchases you make each time you reinvest dividends, you will have what are called different tax lots. There will be a different cost basis associated with each of them.
Tax Lot Identification
If you do not sell all of your tax lots at one time, your taxable gain or loss will depend on the cost basis of the lots you actually sold. This will need to be identified by the broker in order to prepare your reports correctly.
Default Cost Basis Method
If you do not tell a broker which lots to sell prior to a sale closing, they will apply a default cost basis method to select the lots sold.
For stocks, by default and per the IRS requirements, the oldest lots will be sold first. This is called First In First Out or FIFO
Some brokers allow you to specify a different default lot selection method. If you choose one of those, you will need to make manual entries in bivio to keep your records in agreement with theirs.
To complicate matters, the IRS default cost cost basis method for ETF's, Mutual funds and DRIP investment program is Average cost. This is a method that is not easily supported by bivio. If you have any of these investments, it will be especially important that you tell your broker to change the default lot selection method to FIFO to keep your record keeping as simple as possible.

But wait! There's just a little more! Tomorrow we'll discuss what covered securities are.

Stay Tuned!

Laurie Frederiksen
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Clarence Joseph Farrell on

All of my TD Ameritrade accounts were set to FIFO per the iRS direction. I did change two of mine to LIFO because of the way I manage money. I suspect that you probably did the same thing at some time and have forgotten.

On Dec 11, 2015, at 2:42 AM, Mark Johnson <mr.johnson.1953@gmail.com> wrote:

> Can anyone think of a reason a brokerage would set the default lot to LIFO? Ameritrade did that to me and nobody seemed to understand why that is harmful to me. Took all my business elsewhere.
>
> My theory: autistic computer programmers who thought every choice was legitimate. Same kind of people would design a gun with a lever to choose between firing forwards, or backwards.
>

Laurie Frederiksen on

Yes. There is no lot selection information provided in the data file we read from your broker.

Therefore, by default, all sale entries are made in bivio using the IRS default of FIFO (First In First Out).

If you have not told your broker to also use FIFO, you then need to edit each bivio entry and adjust the lots sold manually following these instructions:

Lot Selection Adjustment

This is something you need to do on a timely basis as it will affect all subsequent transactions.

On Mon, Feb 18, 2019 at 3:01 AM Rolan Baguyos via bivio.com <user*35281500001@bivio.com> wrote:

Hi,

My club uses TD Ameritrade. Is it still necessary/better to
use FIFO even when transactions are automatically synced
between bivio and TD ameritrade?

Thanks,
Rolan

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