Business Tax Terms to Know

Cost basis is the original price of an asset, such as stocks, bonds, mutual funds , property, or equipment. Cost basis includes the purchase price and any associated purchase costs. Additional purchase costs included in cost basis are shipping, sales tax , installation costs, commissions and fees on the purchase, and certain tax-related adjustments. Cost basis may increase or de-crease because of tax-deferred gains or tax-deferred losses.

Adjusted basis The adjusted basis in a capital asset is the net cost of that asset adjusted for certain tax items. The cost of the asset includes: the purchase price, the cost of improvements, any legal fees related to the purchase or use of the asset and selling costs. Then, adjustments are made to this cost for accumulated depreciation, losses (casualty or theft), other tax-related costs and losses. The calculation of adjusted basis is an important concept because it is used to determine the capital gain on the sale of an asset.