In reconciling your account and verifying that everything has been added to TaxBit, you may have come across transactions with a small yellow “i” and the message/note “Unknown Gains.”
This is a super common flag, and it's important to resolve these flags because they will affect your 8949 tax form and TaxBit's ability to create a complete form for you to file. Here's what the “Unknown Gains” flag means: your disposal (trade, sale, etc.) has missing cost basis.
What is "cost basis"?
To understand how it can be “missing,” let's explore what the cost basis is! "Cost basis" is the original value or purchase price of an asset or investment for tax purposes (in our case, cryptocurrency is the asset). You can read a little more in depth about cost basis HERE.
Having a cost basis is very important for recording your crypto transactions because cryptocurrency is considered a capital asset. Rather than being taxed upon the purchase of the asset, capital assets are only taxed when you are disposing of the asset.
Think of disposals as anytime you are losing custody/control over an asset! Transactions fitting that description are sells, trades, and expenses. Once you dispose of a crypto asset, TaxBit will take the original cost basis, compare it to the current market value, and calculate whether you've realized a taxable gain or a loss. For more information about transaction types, you can visit this article linked HERE.
What causes missing cost basis?
Now that we have established what cost basis is, we can talk about why it may be missing! This occurs when TaxBit is missing data, specifically transactions that record where and for how much you acquired your assets. Missing cost basis can also be caused when you are missing transfer transactions as each “Transfer Out” needs to be followed closely by a corresponding “Transfer In.”
How do I know if I have missing cost basis?
To double check whether or not you have missing cost basis transactions in your TaxBit account you can filter your Transactions page! Click "Any Flag" and select "Missing Cost Basis." Once you do that, if you have any flagged transactions in your account, they will populate in a filtered list.
What are the two different types of missing cost basis?
There are technically two different ways that you can see the missing cost basis flag on your transactions. One indicates full unknown gains and the other indicates partial unknown gains.
All cost basis missing:
When you see the yellow "i" symbol next to the words "Unknown Gains" on your transaction, it means that TaxBit does not know how much any of the disposed asset was purchased for, so all of the cost basis is missing. If you generate your tax forms with full unknown gains transactions still in your TaxBit account, these transactions will not be included on your form 8949.
Partial cost basis missing:
If you see the yellow "i" symbol next to a gain or a loss, then it means we are missing some of the cost basis. This means that there is enough data to identify how much you paid for a portion of the asset that was disposed of but not the entirety of it. If you generate your tax forms with a partial cost basis transaction, then your form will reflect the partial cost basis as the entirety of the cost basis. This can create the appearance of larger gains, or smaller losses than what actually happened.
How do I fix missing cost basis?
For more information about how to resolve "Unknown Gains" AKA missing cost basis, check out the supplementary article we have titled: "How Do I Resolve Unknown Gains"