If you run your report with Missing Cost Basis Warnings (formerly referred to as Negative Balance Warnings), those trades will be treated with a zero dollar cost basis.
What does this mean?
I bought 1 BTC on Coinbase for $1,000. This makes my cost basis in that BTC $1,000.
I then send this BTC to Binance. I trade that BTC for ZEC on Binance.
If I only upload my Binance trade history into CryptoTrader.Tax (and leave out Coinbase), I will have a Missing Cost Basis Warning because I haven't shown the system how I initially purchased that BTC.
If I were to run my report without fixing this trade, that BTC trade would be treated with a cost basis of $0 instead of the true $1,000 cost basis. Again, this is because the system has no way of knowing at what cost you originally acquired the BTC because you have not uploaded your Coinbase trade history.
From a tax treatment perspective, a zero dollar cost basis is the most conservative way to handle missing data.
So by running your report with this Negative Balance Warning, you will have a $1,000 gain from that trade:
- Your cost basis was $0 and you traded it for a value of $1,000
You can see how running your trades with warnings can inflate your true gains or losses.
How do I fix my Missing Cost Basis Warnings?
You should use this support article to help you troubleshoot your Missing Cost Basis Warnings.
What if my my Missing Cost Basis Amount is extremely small?
Exchange data is tricky to deal with, and not all exchanges are built equal.
At times, exchanges can cause rounding issues for you, have tiny crypto payouts that they don't tell you about, and other strange things that can trigger the smallest of Missing Cost Basis Warnings.
If you notice that your your Missing Cost Basis Warnings are extremely small, know that your report will likely hardly be affected.
Remember, the system treats this in the most conservative way, with a $0 cost basis, so you aren't breaking any laws by not reconciling this warning.
After running your report, you can click into your "reconciliation tab" which will show the dollar value effect that your Missing Cost Basis Warnings had on your report by being treated with a $0 cost basis.
Remember, you can always go back and edit your report after purchasing free of charge to further fix these warnings.