Splitting Bases

Q If my stock splits 2-for-1, how do I figure my cost basis?

— J.C., Lake City, Fla.

A It's probably easier than you think. Your basis splits 2-for-1, along with the stock. Imagine that you bought 100 shares of Buzzy's Broccoli Beer (ticker: BRRRP) for $50 each, paying a $12 commission. Your cost basis is $5,012 or $50.12 per share. After the split, you have 200 shares, and your basis is still $5,012, or $25.06 per share. Always add the purchase commission to your cost basis and subtract the sales commission from your proceeds you'll save a few tax dollars that way.

If you're paying a lot more than $12 or $15 per trade in commissions, you might want to find a less expensive brokerage. Learn more about brokerages at www.broker.fool. com and www.sec.gov/answers/openaccount. htm.

Q What's deflation? — P.T., Kenosha, Wis.

A It's the opposite of inflation, and it happens when price levels fall over time, typically during a recession. It's frequently accompanied by rising unemployment and decreased production. So you get the idea — although the idea of lower prices may sound good, deflation isn't usually welcome. Prices may be lower, but that's mainly due to supply outstripping demand, as many people (and businesses) can't afford various items or are putting off buying them.

Experts today are divided on whether the U.S. is facing the threat of deflation, but many agree that there are measures that can be taken to combat it. The Fed, for example, can lower interest rates, as it has recently done. Those worried about deflation might brace for a possible pullback in stocks and might look to lock in some yields with government bonds.

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