Before you conclude that calculating your
basis is impossibly convoluted, you should know that for the
most part, it’s often very easy to get the cost
basis for an investment: You simply request it from the
financial institution where you have your account.
However, you’re not off the hook when it comes to keeping records for your investments. The fact is that your financial institution might not always be able to give you your cost basis. For example, if you’ve transferred or rolled over the investments from another financial institution, your current firm might not have your purchase records. Or you may have received the investments from someone else, as a gift, inheritance, or other transfer.
Hanging on to your records
Normally, you should keep records for tax purposes for three years after you file your return, or two years after you pay the tax due, whichever is later. However, you’ll need to keep records that establish basis indefinitely or at least as long as you hold the investment. Check with your tax professional for advice about how long to keep records after you sell an asset or give it away.
When in doubt
When calculating basis seems complicated, it may be time to visit your tax professional, who can help you sort through what you need to do to establish your basis and what records you should keep to make it easier in the future. You may also want to consider using money management software that includes tools for calculating cost basis.
Check your tax returns
One way to reconstruct how much you’ve reinvested in a stock and therefore how much you should add to your basis is to check your tax returns. Automatically reinvested dividends that you never see as cash still show up on your 1099-DIV, and you report them as taxable income.
