A Pi Day tasty tax tip on rounding tax form entries
Wednesday, March 14, 2018
Like the never-ending string of decimals it commemorates, Pi Day continues.
On this year's official March 14, 2019, celebration of this mathematical marvel, I'm reposting
a previous π Day item, with its still applicable tax advice on rounding tax form entries.
Doing taxes is all about the numbers. The forms require our Social Security number and that of our spouse and dependent children.
Similar identification digits also are key on tax forms from, for example, our employers and other entities that contribute to our taxable income.
And, of course, we have to put in all those figures about our earnings and subtract the numbers in the form of expenses and deductions and credits to get to the most important amount of all, our final tax bill.
Today's the 30th anniversary of the math-inspired unofficial holiday Pi Day is a good time to consider that last group of numbers.
Infinite pi size: Most of us know only the first three digits — 3.14 — of pi, denoted by the Greek letter π.
We also know that since pi is an irrational number, that is, it has an infinite number of digits that never repeat, there is no end to the number.
Mathematicians are continually calculating it, with the current record set in 2016 by physicist Peter Trüb, who pushed pi to 22.4 trillion digits — that's 22,459,157,718,361 since we're talking numbers — after the decimal.
Round as pie tax numbers: As far as taxes go, the Internal Revenue Service wants us to be accurate, but it also allows us to round our tax return entries.
There are several reasons for this approach.
Round numbers are easier to add and subtract. Anything that makes any part of doing our taxes easier is welcomed not just all us filers, but also by the agency that must process around 150 or so each year.
Tax software, which most of use to figure our annual tax bills, rounds our entries. It drives obsessive-compulsive folks crazy, but that's just how most of the tax preparation software folks have set up their computerized filing assistance packages.
And, as the Form 1040 instructions excerpt to the left notes, the IRS says that's OK.
So have at it in rounding your tax form entries up or down.
Suspiciously round tax entries: But — you knew there was a but coming; we are talking taxes — don't be so cavalier with your entries when it comes to business expenses.
When it comes to tax deductions and expenses, if every entry ends in .00 it tends to make the IRS think that you're, uh, making up amounts.
OK, I tend to add tip amounts to business meal checks so that that final credit charge comes out to no cents spent. But I have those receipts to prove my even-dollar fixation.
Other financial transactions, however, rarely come to just dollars and no cents. How often, for example, does that tax-deductible drive to meet a client come to exactly 10 miles?
The same is true for all tax-related travel, such as the miles you put on your car volunteering to deliver meals to shut-ins, or the trips to the doctor that helped you’re your Schedule A medical claims over the 7.5 percent threshold or, for the last time for a while on your 2017 tax return, the miles you moved for a new job.
At the very least, all those rounded numbers on your 1040 and associated forms make it look like you didn't keep good records of the precise deductible amounts.
And that could encourage the IRS to audit all your entries.
So round, or let your tax software do it, your entries where appropriate. But be sure to, as your math teacher used to say, show your detailed tax work if the IRS ever asks.
Now I'm off to run the numbers on how many extra exercise classes I'll need to take this week to offset the pieces of pie I plan to enjoy this Pi Day!
You also might find these items of interest:
- 5 tax record keeping questions ... and answers!
- Save space and trees: Digitize your tax records
- Diligent, comprehensive record keeping saves the tax day
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