Some tax terms sound so similar that they get used interchangeably, even in meetings full of experts. The difference between them is usually where the reporting errors start.
Five pairs worth keeping apart 👇
- Purchase price ≠ cost basis
The purchase price is what was paid. The cost basis is what the tax calculation actually uses, and it can include transaction costs and change over time through corporate actions, reinvested distributions or deferred losses. - FIFO ≠ average cost
Both are methods for deciding which units count as sold. Same portfolio, same trade, different taxable gain. Which method applies depends on the jurisdiction, and sometimes on the type of asset. - Tax credit ≠ tax refund
A credit offsets foreign withholding tax against the tax owed at home. A refund means reclaiming excess tax from the country that withheld it. Both deal with the same withholding tax, but they follow different processes, deadlines and documentation requirements. - Distribution ≠ income
Not every payout is taxable income. In many jurisdictions, part of a distribution can be a return of capital that reduces the cost basis instead. Classified wrongly, it distorts every future gain calculation on that position. - Booking centre ≠ tax residence
The country where an account is booked doesn't decide which tax rules apply. The client's tax residence does. A portfolio booked in Luxembourg can therefore require reports under the rules of Germany, Belgium or Switzerland.
Details vary by jurisdiction, which is exactly why the distinctions matter. 🔍
Which pair would you add as number six?
