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What is Cost Basis

What is Cost Basis? It's the price at which we purchase an investment for. As you know, stocks can go up, down or sideways. Nothing is guaranteed. Say you purchased a stock for $10 a share. Hypothetically, down the road, it grows to $15 a share and you're looking to sell. So you think, "how much of that is taxable?" Well, being at $15 when you purchased it for $10, this $10 is your basis, meaning it's not taxed because it's what you purchased. You're taxed on the gains, which in this case is $5 per share. Let's look at this as an example from an inheritance standpoint. Grandpa Eunice purchased a startup company way back in his 30s (he's in his 80s now). They started out in a garage and I may or may not be filmed on one of their products as we speak. So those stock certificates are worth millions of dollars. Grandpa thinks, "My kids are going to want the money, they won't want the stocks. They don't want to have to deal with selling". In reality, what he should be doing is transferring the stock to the children because they'll receive a "step-up" in their basis. If they were to inherit that unrealized gain, their basis would be $15. If you have questions or would like to look at your basis structure, feel free to reach out to me. Thank you. Lucas Connect with Lucas on LinkedIn for more "Term Tuesdays" and educational content. Questions? Contact us today. Web: FocusedTax.com Phone: 262-827-1500 Email: custserv@focusedtax.com Securities offered through Securities Service Network, LLC., Member FINRA/SIPC. Fee-based advisory services offered through SSN Advisory, Inc., a registered investment advisor. Under no circumstances should anything in this video be considered investment advice. Planning is not guaranteed to lead to financial security.