Cost basis account, anybody

bchadwick

Would anybody be so kind to explain why the cost basis needs to be returned in calculating FVIF cgb? FVIF cgb = (1+r)^n*(1- tcg)+tcg*B
And why the cost basis is set to be zero for a tax-deferred account?
Tks!

mik82

(1+r)^attack

lcw77

If you don't attack it, it will attack you.

ohai

Good points. But how to explain that the cost basis is set to be zero for a tax deferred account

Chuckrox

Because all the contributions into a a tax deferred account are pre-tax (Uncle sam never hit that intitial base with a tax)



Edited 1 time(s). Last edit at Tuesday, May 3, 2011 at 07:49PM by jbaphna.

zwjy

if you transform the formula to
FVIF cgb=(1+r)^n- [(1+r)^n-B]*tcg
it's easier to understand.

the 1st term is the FV without tax, and the 2nd term is the income tax you paid. simply speaking, it's income tax and on tax on "gain", the investment cost is excluded from tax