Documents that are related to any and all transactions that have to do with the investment portfolio are referred to as Tax lots. The tax lot will give the details of the terms of each transaction that involves each security in the portfolio, and they identify the tax implications that are associated with teach line item in the lot. When it is time to calculate and pay taxes for a given period then this record of tax purchases can come in very handy.
It provides a point of reference for creating investment strategies
The process also provides a point of reference for creating investment strategies along with forming the basis for tax lot accounting. Due to the reason that the taxable purchase date for each transaction is included in a tax lot, it is possible to determine which shares in the portfolio to sell at some point in the future and thus realize the maximum amount of tax advantage.
