Cost basis reporting options

Cost basis is defined as the price you pay for an asset. It is used to determine the amount of gain or loss you will realize if you sell the asset. If a gain is realized, you may owe federal and state income taxes. If a loss is realized, you may be able to deduct the loss on your income tax return. Cost basis reporting applies only to covered shares of non-tax qualified accounts including:

• Individual
• Joint
• UGMA/UTMA
• Estate
• Collateral
• S-Corporation
• Partnership
• Sole Proprietorship
• Trust

The Economic Stabilization Legislation, signed into law in October of 2008, requires mutual funds to report cost basis information to shareholders and the IRS beginning January 1, 2012.

• These requirements apply to non-tax qualified mutual fund shares acquired on or after January 1, 2012, (covered shares) and which are subsequently sold.
• Cost basis is reported to you and the IRS on tax form 1099-B, which will be mailed to you in January if you sold covered shares from a non-tax qualified account.

When opening a new account, you have the option to choose from the following cost basis accounting methods:

• First In First Out (FIFO) – The cost of each share (or share lot) is tracked and the first shares purchased are the first shares deemed sold.
• Last In First Out (LIFO) – The cost of each share (or share lot) is tracked and the last shares purchased are the first shares deemed sold.
• High Cost First Out (HIFO) – The cost of each share (or share lot) is tracked and the shares with the highest cost are deemed sold first.
• Low Cost First Out (LOFO) – The cost of each share (or share lot) is tracked and the shares with the lowest cost are deemed sold first.

When you open a new non-tax qualified account, you will need to select a cost basis method.