The cost of shares, used in calculating your gains or losses for tax purposes. For shares bought in the open stock markets, your cost basis is the purchase price.

For equity compensation, the basis includes the cost plus any compensation income reported (e.g. amount for ordinary income tax on NQSO spread). The reporting of the tax basis for stock compensation on IRS Form 1099-B raises special issues, as discussed in a related FAQ.

To calculate your capital gains, subtract your basis from the amount realized on the sale of stock after any commissions or fees. If you sell shares through a broker, the Form 1099-B that you get from the broker will report the amount of your sale proceeds. For covered securities, Form 1099-B also reports whether the gains are long- or short-term along with the basis that you use to determine the capital gain or loss.

For details, plus annotated diagrams of the necessary reporting on Form 8949 and Schedule D of your tax return, see the section Reporting Company Stock Sales elsewhere on this website. See also IRS Publication 551.