How do you calculate average monthly stock price?

One of the simplest methods of calculating cost basis is average cost. This is Janus Henderson's default method of calculating your gains or losses and ultimately helps you determine what is taxable when you sell or exchange shares.

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What is the average cost basis method?
Cost basis determines gains or losses.
Example: Average cost basis calculation
How does average cost impact taxes?
Related Content
How do you calculate averaging stock price?
What is AMC formula?

You’ll typically need to calculate cost basis for taxable accounts. Retirement or tax-deferred accounts offer tax shelters and therefore are generally taxed in different ways.

What is the average cost basis method?

The average cost basis method considers the total cost of your investment, factoring in purchases, reinvested dividends, capital gains and returns of capital. From that figure, it calculates the average purchase price of your shares. Your average cost basis can help you calculate whether or not your investment gained or lost value.

Average cost isn’t the only method to calculate cost basis. Unless you elect an alternative, the average cost method is used help calculate the money you made (or lost) and how much you owe in taxes.

Cost basis determines gains or losses.

When you sell a share, the net proceeds from the sale are compared to your average cost basis. If your net proceeds are greater than the average cost basis, then the sale is generally considered a gain. If it’s less than what you paid for it, it may be a loss.

Example: Average cost basis calculation

A shareholder opens an account with a $2,500 initial purchase and invests $100 into the same fund at different times during the same year. Then the fund paid a taxable capital gain distribution of $50, which was reinvested into the fund. The result is an addition to the cost basis of $50.

DateTransactionCost Per ShareAverage Cost Basis (Total Purchase )Number of SharesJune 1Purchase$50$2,50050Sept. 1Purchase$35$1002.86Oct. 1Purchase$40$1002.5Dec. 15Capital gain reinvested$40$501.25Totals$2,75056.61

The same shareholder sold five shares the following year on May 1 at $70 per share for a total sale of $350.

DateTransactionCost Per ShareNet ProceedsNumber of SharesMay 1Redemption$70$3505

Average Cost per share = Total purchases ($2,750) ÷ total number of shares owned (56.61) = $48.58.

To calculate the average cost, divide the total purchase amount ($2,750) by the number of shares purchased (56.61) to figure the average cost per share = $48.58.

Cost Basis = Average cost per share ($48.58) x # of shares sold (5) = $242.90.

The difference between net proceeds of the sale and the cost basis in this example indicates a gain of $107.10. Remember, average cost sells the oldest shares first.

Gain or Loss = Net Proceeds ($350) - Cost Basis ($242.90) = Gain of $107.10.

How does average cost impact taxes?

When shares are sold, average cost helps you determine what is taxable and what is not. Gains are generally taxable and losses are typically not.

In the year after a sale, you will receive Form 1099-B, which reports net gains or losses for taxable accounts.

Short-term gains are generally taxed at your ordinary income rate. Long-term capital gains are taxed at a rate typically lower than the ordinary income tax rate.

Short- or long-term gains are determined by how long you’ve owned the shares. Shares held for a period of more than one year are generally considered long term – a year or less is generally considered short term.

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Questions?

If you have questions, call a Janus Henderson Retirement Specialist at 800.525.1093. We are happy to help.

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Supplemental Tax & Fund Distribution Information

An important tax-planning consideration is a potential year-end dividend or capital gain payments. Find out about these fund distributions here.

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Understanding Cost Basis

Cost basis is simply the original value, or purchase price, of an asset for tax purposes. Knowing cost basis can be useful in calculating taxable gains.

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How do you calculate averaging stock price?

The investor or trader still likes the stock and, therefore, decides to buy another 100 shares at a lower price. Use the average down stock formula below to calculate the new breakeven price: [(# of shares x purchase price) + (# of shares x second purchase price)] / total # of shares.

What is AMC formula?

AMC is calculated by totaling the quantity of medicine dispensed over the last three or four months and dividing this total by the number of months of data used. To determine the order quantity, multiply AMC by the maximum number of months of stock desired (e.g., 3).