5.1.1.2.3. Commissions and Fees
Adjusting the tax basis of a security for commissions and fees can be a little confusing, so you’ll want to make sure you spend a little extra time studying this section. In a nutshell, the cost associated with buying a security is added to the tax basis, while the cost for selling a security is subtracted from the amount you recognize as the proceeds from selling a security.
For example, if someone buys a share of ABC Company for $100 plus a $10 commission, the tax basis of that stock against which taxable profits will be measured is $110 ($100 for stock + $10 for commission). In this instance, the tax basis that will be reported on an investor’s tax return is the combined total of the price of the stock and the commission.
However, when an investor sells the stock, the commission is treated differently when computing the tax basis. Instead of adding the commission for selling the stock to the original cost basis, it is instead subtracted from the reported proceeds, or money received from the sale. So, if a client’s same ABC Company stock later sells for $135 and the client pays a $10 commission to sell it, she would actually report proceeds of only $125 ($135 for the stock, minus $10 commission).
Remember that, in this one case, the IRS is helping the investor pay a lower tax bill by allowing her to reduce her gain by the amount of the commission.
Thus, the total profit calculated on the purchase and later sale of one share of ABC Company would be: