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Yes, I would like to say that my cost basis is lower than it actually was (and thus pay more taxes).

Quick story, which I think is mostly correct (but I can't remember all details):

I own shares of the GLD ETF. I believe that a very small amount (I think about .001 per share) is sold each year by the issuer to cover expenses. Thus I need to pay taxes on my gains on those shares. If I owned 100 shares (worth about $13,000), then the amount sold would be about .1 shares, or about $13 worth.

I don't even remember the entire process, but it was confusing and time-consuming to figure out the exact cost basis (it was not just the acquisition cost - I had to find random tables, and enter a lot of data into Turbotax, I think because they sell them every month).

Long story short, I spent at least a couple hours researching and entering this data. I ended up paying capital gains on something like $3, where if I just entered $0 as my cost basis, I'd pay capital gains on something like $12.

So is there any problem (legal or otherwise) with entering $0 as my cost basis, and thus paying more tax (while saving myself a lot of time)?

iLuvLogix
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Jer
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2 Answers2

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You sign under penalty of perjury that your tax return is correct.

That said, if the misstatement is in government's favour, and in such relatively insignificant amounts (relatively, since there's no materiality threshold for tax issues), I would guess that no-one will go after you, even if discovered. If audited, let the auditor do the calculations, and then have them make the adjustments in your favour:).

To be sure you can consult a licensed tax professional (EA/CPA licensed in your state).

I'm assuming this is for the US tax return, but is probably relatively similar everywhere else.

littleadv
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3

This isn't foolproof, but from Publication 4491 (Rev. 10-2021), page 122:

What is the basis of stock?

Basis

In order to compute gain or loss on a sale, taxpayers must provide their basis in the sold property.
The basis of property is usually its cost.

  • If taxpayers need help determining their basis and do not have the original purchase documents, refer them to Publication 551 and their stockbroker.
  • If taxpayers cannot provide their basis in the property, the IRS will deem it to be zero.

With the understanding that:

  • The section title says "stocks" and not "securities"

  • It's unclear to me if it's talking about what the IRS will do or whether it's talking about what you should do

...my common sense (although I am not a lawyer) tells me that it would be sufficient defense for you to point to this clause in the IRS's own guidance as justification for putting zero as your cost basis.

user541686
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