Cost Basis
Definition
The original price you paid for an investment, including commissions and fees. If you buy 100 shares at $50 per share plus $10 commission, your cost basis is $5,010 total or $50.10 per share. Used to calculate capital gains when you sell.
Why It Matters
Cost basis determines your taxes when you sell. If you buy at $50 and sell at $100, your capital gain is $50 per share. But if you forget what you paid (averaging down), you might overpay taxes. Good record-keeping saves money.
Example
Buy 100 shares of Apple at $150 equals $15,000 cost basis. Sell 10 years later at $300 equals $30,000 proceeds. Capital gain equals $15,000. At 15% long-term capital gains rate: $2,250 in taxes. Selling at $160 equals only $1,000 gain, $150 taxes.