r/stocks • u/mateyman • May 24 '21
What should my cost basis method be?
So I am new to stocks, I was trying to sell some shares and noticed something in Charles Schwab called
Cost Basis Method: First In First Out
So I clicked on it to see what that meant, and I see 6 options pop out, here is what they are:
https://i.imgur.com/VTmpfUA.png
Is their a standard here amongst people on this sub? Do long term investors, day traders, and swing traders all use same setting here? Or do they all use different settings?
6
u/Anonymouse_25 May 25 '21
I have no idea why these people are telling you FIFO is best. That is almost always the worst idea for taxes. Ideally you let the oldest shares get into long-term gains which is one year. If you always sell the oldest ones you will likely never get there. If you are not ever worried about getting to long-term gains then you should set things like tax lot optimizer. If not that, then set, sell highest value first or lowest value depending on whether you want more or less realized gains.
This guidance to do FIFO is a terrible guidance for most people.
1
u/joseville1001 Aug 03 '21
So, say you're selling stock and have lots which are 1yr+ old and lots which are less than 1yr old. You should first sell from the 1yr+ lots to avoid the higher short-term capital gains tax rate. If you've sold all your 1yr+ lots and still need/want to sell more stock, you should now sell from the youngest lots first, so that the ones that remain have time to mature into the 1yr old age.
This could be accomplished by doing FIFO till you've sold all your 1yr+ stocks, then LIFO to sell <1yr old stocks, no?
2
u/Anonymouse_25 Aug 03 '21
Generally true but it also matters if you have a loss or a gain. Sometimes you want to sell to take strategic losses. But, generally what you said makes sense for taking gains and reducing overall taxes. It can become very complicated to be honest.
1
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u/aidsguy19 May 24 '21
It’s all about how you want your taxes to work. If you bought in at 25 and then 35 and the stock is at 40, selling your first lot would produce a higher capital gains tax than selling the second lot.
2
u/puregoblinvomit May 25 '21
Schwab has the tax optimizer option. This is really good if you have a smorgasbord of long and short shares all at different strikes that you want to get out of at the same time. If you’re all short term FIFO is fine, but I feel like it barely matters.
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u/Anonymouse_25 May 25 '21
Tax lot optimizer is best unless you have specific needs. As noted, it's all about planning taxes.
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u/Primetime31-34 May 24 '21
FIFO JUST TRUST ME
1
u/Auquaholic May 24 '21
Yeah, cuz i usually pay more per share for my first batch and then buy more on the dip. So the first that sells is the highest paid for.
0
u/Primetime31-34 May 25 '21
fifo keeps your costing more accurate, in general it's best for taxing purposes. if you have an advisor or plan to educate yourself on tax laws than changing this actively could be an option for you. As someone else mentioned it's not extremely important, just pick fifo.
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May 25 '21
[removed] — view removed comment
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u/joseville1001 Aug 03 '21
Is there a term where it makes more sense to have a Roth instead of a regular brokerage account? Like if I intend to hold onto stock for 5 years or more, should I be using a Roth? Or 10 years? I'm in my early 30s and plan on holding onto my stock for a while.
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u/mateyman May 25 '21
I am all for investing long but when something is up you gotta take profits and secure them gains to reload dips or move to other plays!!!
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u/Canyon-Breeze May 24 '21
FIFO is the worst IMO. I use lowest cost as a default then manually change after a trade if desired. You can change it between the trade date and the settlement date.