The Cost Basis Formula is an accounting method used to calculate the profit or loss on a security when it is sold. It takes into account the original cost of the security, plus any applicable commissions and fees that have been paid. The Cost Basis Formula can help investors determine how much in taxes they will owe when selling their investments. Essentially, the formula helps investors understand the “cost basis” or total investment involved in a particular security, allowing them to make educated decisions on when they should sell or buy more of that security.