Implementing proper cost basis tracking for shares

Bill Gribble
Thu, 2 Nov 2000 08:22:10 -0600

On Mon, Oct 30, 2000 at 03:51:13PM +1100, Robert Graham Merkel wrote:
> Rob Browning writes:
>  > I'm not fully versed in all the financial ramifications, but I left
>  > that discussion thinking that practically speaking, we could really
>  > only track the events (buys/sells/splits/etc.) as the "facts", and
>  > needed to leave the computation of cost-basis, etc. up to a separate,
>  > and more flexible, "computation" process that would run later.
>  > 
> Correct.  We only need to record which shares are sold - the
> computation of costs is done at the reporting stage.

Sorry to jump in here so late.  I have done a bit of study on this
issue, at least for US tax law, and let me point out that recording
"which shares are sold" is not only optional, but in fact if you want
to do it legally you actually have to do some stuff like write a
letter to your broker with the shares you wish to sell listed... you
have to have written proof that you designated particular shares to
sell to your broker at the time of sale.

We have a representational problem: there's nowhere that we record the
information that's relevant for tax purposes (i.e. an enumeration of
share numbers for shares bought and sold).  If the parcels of shares
you sell happen to be the same parcels that you bought, the problem is
a little simpler, but in general it's not going to work that way.

In the US, the only choices you have for stocks are FIFO and SID
(Specific Identification, what we're talking about here).  For mutual
funds you can also use a method called "Average Cost".