6

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)?

4

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.

  • 3
    You are absolutely correct. I've run into cases where one can't find their cost basis on a stock from so long ago that the cost of research is probably higher than the tax cost of claiming zero basis. Logic says there can't be a penalty for claiming zero basis, when it might really be a bit higher. I'd never advise to pay too little tax and hope for no audit, but paying too much because of this type of situation would have no consequence. If audited, they'll ignore this type of overpayment. – JoeTaxpayer Oct 4 '13 at 17:16
  • Thanks. Could this trigger any flags (automated or not), and make it more likely that I am audited? (Not that I have anything to hide!) – Jer Oct 4 '13 at 17:52
  • @jer I can't think of any. The automation looks for underreporting, so when they do their matching they expect your income to be at least as what they know. Which in your case will be fine. – littleadv Oct 4 '13 at 17:53

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