As I go deeper into tax planning inside my CFP® studies, I’m realizing:

It’s not just what you invest in.
It’s how your brokerage is set up behind the scenes.

One of the most overlooked settings?

Cost basis method.

And most investors have never checked it.

🧠 First: What Is Cost Basis?

Your cost basis is what you paid for an investment.

When you sell, your taxable gain is:

Sale Price – Cost Basis = Capital Gain

If you’ve bought the same ETF or stock multiple times over the years, you don’t have one cost basis.

You have multiple purchase lots all at different prices.

Your brokerage decides which shares get sold first.

That choice affects your taxes.

🚨 Why You Should Check This

Most brokerages default to:

FIFO (First In, First Out)

That means:
The oldest shares you bought are sold first.

Older shares usually have:

• Lower purchase prices

• Larger gains

• Bigger tax bills

There may be more tax-efficient ways to sell but only if your settings allow flexibility.

✅ Step-by-Step: How to Check Your Cost Basis Method

(These steps are similar across Fidelity, Vanguard, Schwab, etc.)

Step 1️⃣ Log Into Your Brokerage Account

Go to your main dashboard.

Look for:

• “Accounts”

• “Positions”

• Or “Portfolio”

Step 2️⃣ Find “Cost Basis” or “Tax Lots”

Look for a tab or link that says:

• Cost Basis Information

• Tax Lots

• Lot Details

• Capital Gains & Losses

Sometimes it’s under:
“Account Features”
or
“Settings.”

Step 3️⃣ Check the Default Disposal Method

You’re looking for language like:

• FIFO

• LIFO

• Average Cost

• Specific Identification

If it says FIFO, that’s the standard default.

If it says “Average Cost,” that means gains are blended across purchases (less flexible for planning).

If it says “Specific Identification,” that gives you the most control.

🧾 What Is Specific Identification?

This is the most flexible method.

It allows you to:

• Choose exactly which shares to sell

• Pick high-cost shares to minimize gains

• Harvest losses intentionally

• Manage short-term vs long-term tax exposure

It does require attention when placing trades.

But it gives you control.

🏦 Where This Matters Most

This applies to:

✅ Taxable brokerage accounts

It does not matter inside:

• 401(k)

• 403(b)

• IRA

• Roth IRA

• HSA

Because those accounts don’t trigger capital gains taxes when selling.

💡 Example: Why This Setting Matters

Let’s say you invested over several years:

2019 – Bought at $80
2021 – Bought at $120
2023 – Bought at $180

Now the ETF is $200 and you sell.

If FIFO is used:
You sell the $80 shares first → large taxable gain.

If you use Specific ID:
You could sell the $180 shares → much smaller gain.

Same sale.
Different tax outcome.

That’s planning.

🧠 What I’m Learning in My CFP® Studies

Tax planning isn’t just about:

• Deductions

• Roth conversions

• Credits

It’s also about:

How assets are liquidated.

How gains are realized.

How income is layered.

Cost basis settings are small operational details but they shape real-world tax bills.

NurseMoneyDate® Bottom Line

If you have a taxable brokerage account:

Log in this week.
Check your cost basis method.
Know what your default is.

You don’t need to change anything immediately.

But you should know what system is running in the background.

Because most people don’t overpay taxes intentionally.

They overpay because they never checked the settings.

And part of financial maturity is knowing how your own money actually moves.