Tracking the Cost of your Share Purchases

Many investors buy, hold, sell stocks and never pay much attention to the information that they need to be tracking for reporting purposes on their tax returns. Simply put, to calculate the gains or losses on the sale of your shares, you subtract the average cost of the shares from the proceeds.

Unfortunately, many institutions do not continually put the cost of the shares on your monthly statements. Then when it is time to sell, you are forced to start searching for statements from years earlier in order to determine what you paid for the shares in the first place.

Then the taxpayer is left in a difficult situation. Do you estimate the costs of the shares sold? Do you try and order the statements and hope you don’t miss the tax deadline? Does your bank even still have copies of the statements?

The best option is to keep ALL of the paperwork detailing the cost of each share purchase, until those shares are sold. And if possible, create a spreadsheet for yourself on Excel to keep track of the average costs of the shares held. This is important because if you buy the same shares at different prices, you may end up using the wrong price to calculate the cost base.

Your accountant can track your capital gain/loss balances for you if you provide the right information, and are willing to pay for it. Keep in mind, the more share transactions you have, the work it will be for someone else to summarize.

And if you do have a lot of transactions, it would be wise not to wait until April 20^th to start preparing your income tax return as you risk filing late and being charged with late filing penalties which are calculated on the tax owing. So if it was a good year for you in the market, your penalties will be that much larger.