Question 1

Why does the average price matter for tax purposes?

Accepted Answer

Your taxable gain or loss on selling shares is (sale price − cost basis) × shares sold. An incorrect cost basis leads to over- or under-reporting tax.

Question 2

Does DCA always lower my average price?

Accepted Answer

Only if you buy when the price is below your current average. Buying at a higher price raises the average. DCA reduces timing risk, not necessarily average cost.

Question 3

How do stock splits affect my average price?

Accepted Answer

After a 2-for-1 split, your share count doubles and average price halves. Your total cost basis is unchanged.

Question 4

Should I include brokerage commissions in the cost basis?

Accepted Answer

Yes — commissions are part of your acquisition cost and should be added to the total cost, increasing your average price.

Question 5

What is the FIFO vs average cost method?

Accepted Answer

FIFO assumes you sell your earliest shares first (each lot retains its original price). Average cost pools all purchases. The method you use affects taxable gain calculations.

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