Understanding Cost Basis
Cost basis is the value of an asset for tax purposes. It is used to calculate an investor's capital gain or loss, which is the difference between the asset's original cost at purchase and its value at the time of sale/redemption. The Emergency Economic Stabilization Act of 2008 requires mutual fund transfer agents and brokers to provide cost basis and holding period reporting to both the Internal Revenue Service (IRS) and shareholders for gross proceeds from purchases acquired on or after January 1, 2012.
Electing a Cost Basis Method
There are a variety of methods used to calculate a shareholder's cost basis. Firsthand Funds offers you the option to choose one of the following cost basis calculation and depletion methods. NOTE: Firsthand Funds' default cost basis election is FIFO. If you make no election, Firsthand will assign FIFO as your cost basis methodology.
| FIFO (First In, First Out) | Oldest shares purchased are first redeemed. This means that the purchase price used to calculate capital gain/loss is the purchase price of the oldest shares in your account. For example, if you purchased 100 shares at $10 in January, then purchased another 100 shares at $11 in February, then sold 100 shares for $12 in March, your cost basis for those shares would be $10 and you would have a capital gain of $2 per share. |
| LIFO (Last In, First Out) | Most recent shares purchased are first redeemed. For example, if you purchased 100 shares at $10 in January, then purchased another 100 shares at $11 in February, then sold 100 shares for $12 in March, your cost basis for those shares would be $11 and you would have a capital gain of $1 per share. |
| Specific Lot Depletion | The lots to be depleted are specifically chosen by you at the time of redemption. For example, if you purchased 100 shares at $10 in January, then purchased another 100 shares at $11 in February, then sold 100 shares for $12 in March, you would choose which cost share lot (100 @ $10 or 100 @ $11) you wished to sell. |
| ACSC (Average Cost Single Category) | Shares are depleted on a first in, first out basis with the cost basis calculated by taking the shares redeemed multiplied by the average cost per share. For example, if you purchased 100 shares at $10 in January, then purchased another 100 shares at $11 in February, then sold 100 shares for $12 in March, your cost basis for those shares would be $10.50 and you would have a capital gain of $1.50 per share. |
This election is good for all future transactions unless you either revoke or change the standing election. You may also wait to choose the method until the time you request to redeem shares. If you do not choose a cost basis method before January 1, 2012, you will automatically be assigned the FIFO method. If you wish to elect a standing method other than our default of FIFO, please fill out the relevant section on our account services form and return it via mail or fax.
Please note that if you elect ACSC as your cost basis method, IRS regulations require that you make the election in writing (that is, you cannot make this election by phone).
Updating Your Cost Basis Election
| By Phone | By Mail | Online |
|---|---|---|
| 1.888.884.2675 | Send an election form or a signed letter of instruction to: Firsthand Funds P.O. Box 9836 Providence, RI 02940-8036 |
You may make changes to your cost basis election online. Log in to your account online and follow the instructions (click here to sign up for online account access). |
When You Redeem Shares
When you redeem shares from your account, we will deplete shares and calculate the cost basis on those shares according to your Cost Basis Method Election. If you do not designate the cost basis reporting method to be used prior to or at the time of your redemption, the trade will be processed using our default method of FIFO.
Transaction Confirmations and Quarterly Statements
Cost basis information will be reported on your trade confirmations as well as on your quarterly statements. For shares sold, your trade confirmations will list the cost basis methodology used and the original purchase date and price of the share lot sold. For shares purchased, the confirmations will list the cost basis methodology used and the purchase date and price of the share lot.
Tax Reporting
If you redeem eligible covered shares from your account during a given year, the Form 1099B that you will receive early the following year will provide cost basis and gain or loss information specific to the covered shares redeemed.
We strongly encourage that you consult your tax adviser if you have any questions about your cost basis reporting options. Information can also be obtained by visiting the IRS website at www.irs.gov.
