Thank you for reminding us about the situation. I can see that it is helpful to designate a consistent method when buying different lots of a stocks, such as FIFO, but I didn't realize it was necessary to make a determination at the time of purchase. I thought that when we sold partial holdings, at that time we were to instruct the broker as to which shares (date of purchase) we wish to sell. I can envision where I want the last purchase to be sold, and not the earlier ones with a (hopefully) cost basis. Thus, early designation seems less critical. Or, am I missing something? Should we use something other than FIFO - at the sale, is there a certain manner in which Bivio needs to be notified? Thanks again, Roy Chastain "Good judgment comes from experience, and a lot of that comes from bad judgment." Will Rogers --- On Wed, 9/7/11, Laurie Frederiksen <laurie@bivio.biz> wrote: From: Laurie Frederiksen <laurie@bivio.biz> Subject: [club_cafe] Cost Basis Method-You Need to Check Your Brokerage Account To: "The Club Cafe" <club_cafe@bivio.com> Date: Wednesday, September 7, 2011, 8:45 AM I found out something disturbing last night when I accessed our clubs Folio Investing account to place a sale order. They had chosen a default tax lot selection method for us which was not First In First Out. The IRS default for stock sales, unless you specify differently at the time of the sale, is First In-First Out. This is also the default identification method used by bivio. As far as I am concerned, a broker has no business picking a default method for me which is different from the IRS default. There are new cost basis reporting rules being phased in starting this year. For any stocks purchased during 2011, your brokerage will be reporting your gain or loss when you sell them to the IRS. The IRS will be matching this information with what you report on your club 1065. If it doesn't match, you will probably receive a "love note" from the IRS computer and will have some "splainin' to do. I would highly recommend that you access your brokerage account and see what they have set for you as a default cost basis reporting method. If you don't want to worry about having to make adjustments in your bivio records, make sure your broker is using First In-First Out. If you'd rather not use First In-First Out, it is fine for you to choose something else. Just make sure you understand it will mean making adjustments in your bivio records when you record a sale to make sure your taxes will agree with what your broker will report. -- Laurie Frederiksen Invest with your friends! www.bivio.com

Laurie,

What about settings that are ‘Minimize Gain or Maximize Loss’.

Laurie,

What about settings that are 'Minimize Gain or Maximize Loss'.

Marty Eckerle

Bill,

Laurie’s reply makes me feel like we don’t want to mess with this.  Setting to FIFO makes for an easy non-forgettable solution.  Let’s talk about it next meeting.

Marty

Hi,

I’ve asked Folio for their statement on this issue and below is their response:

‘The FIFO method is an available but not required default. That choice does not necessarily provide the best result for investors. The default choice we start with is maximize gain - minimize loss as it usually provides the best tax consequence for the investor. Of course we provide other choices for investors and their advisors to use including the FIFO method. We encourage investors and their advisors to use the method best suited to their investment strategy.’

Folio as well as many other brokers offer the option to change the cost basis/tax lot selection method right on the page where you are entering your sell order.

As Laurie pointed out in her original post, it’s fine to choose another method, just make sure your club accounting software records match the broker’s methods when you record a sale.

Regards,

Suzi Artzberger

BetterInvesting

Bill,

Laurie’s reply makes me feel like we don’t want to mess with this.  Setting to FIFO makes for an easy non-forgettable solution.  Let’s talk about it next meeting.

Marty