Understanding Cost Basis

Average Cost accounting provides simple tracking and depletion for fund shares. Many of our investors are accustomed to this method, as Janus Henderson has been providing this information as a customer service for many years. This method averages the price per share paid of all fund purchases and depletes shares in proportion based upon the amount of each redemption.

HOW TO CALCULATE AVERAGE COST

The FIFO method sells shares in the order they were purchased, with older shares generally being depleted first.

This accounting method is used to sell off the most-recent purchased shares first. The difference between the sale price and the original price is the potential taxable gain or loss.

The HIFO accounting method sells the highest-cost shares before all others. If you bought shares at varying times for different amounts, you may owe fewer taxes when you take the withdrawal. Eventually, as you deplete the lowest-cost shares, taxes will be owed and may be larger at that point in time.

The Lowest Cost, First Out method dictates that shares with the lowest cost are sold before all others. The difference between the sale price and the original buy price determines the taxable gain or loss.

LGUT evaluates losses and gains as well as holding periods. Tax lots (shares purchased together) with losses are depleted before tax lots which would register gains. For lots that yielded a loss, short-term lots are redeemed ahead of long-term lots. For gains, long-term lots are redeemed ahead of the short-term lots. You can’t use the same shares to calculate the cost basis multiple times, but taxes could potentially be minimized.

The Specific Lot Identification method allows you to manage your tax obligation by identifying the specific shares that may be most beneficial to sell for tax purposes. For example, you may choose to sell shares that have been owned for more than a year to avoid a short-term capital gain. This method may help you to pay taxes at the lower rate for long-term investments.

If you use this method, a secondary method is applied in the case that redemption requests can be fulfilled without additional instructions. The secondary method will allow us to process any automatic redemptions and exchanges, and will also allow redemption requests without specifically identifying which lots to redeem). FIFO, LIFO, HIFO, LOFO and LGUT may all be selected as a secondary method. However, Janus Henderson will utilize FIFO as a secondary default if a different default is not elected in writing.