If you run your report with Negative Balance Warnings in it, 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 Negative Balance 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. This 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 gain or loss.
How do I fix my Negative Balance Warnings?
You should use this support article to help you troubleshoot your Negative Balance Warnings.
Total Amount to Reconcile
On Step 3 "Review Data" you can click into your Negative Balance Warning to see a message that describes how much of the asset you are "missing". This is the total amount to reconcile.
The system flags the first trade in the series when it detects missing data, and then automatically calculates how much coin you are missing in total across all subsequent trades after this first flagged trade.
What if my amount to reconcile 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 Negative Balance Warnings.
If you notice that your amount to reconcile in your Negative Balance Warning is 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 Negative Balance 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.