A tasty Pi Day tax tip on rounding tax form entries
Saturday, March 14, 2020
Happy Pi Day 2014. March 14 is the annual celebration of pi, usually indicated by the Greek letter π, since the 3/14 calendar format is a close representation of pi's first three digits.
What exactly is pi? Naturally, I went to the internet to find out, so math experts please cut me a slice of slack here.
The consensus is that pi is a number that originally was defined as the ratio of a circle's circumference to its diameter.
It's a mathematical constant, meaning it isn't changed by the size of the numbers it is used to equate. It's also an irrational number that, despite the 3/14 designated celebration day, cannot be expressed as common fraction.
And even though it usually is shown as 3.14159, its decimal representation never ends and never settles into a permanently repeating pattern.
A larger than ever piece of pi: Computing technology has allowed us to calculate ever more digits of pi. The current record was set last year by Emma Haruka Iwao, a Google employee.
Iwao and her team computed pi to 31.4 trillion decimal places or pi multiplied by 10 to the 13th power. That's 31,415,926,535,897 digits to be exact, smashing the previous record of 22,459,157,718,361 digits set back in 2016.
Iwao's accomplishment notwithstanding, which also was the first time cloud technology had been used for such a massive pi calculation, another web article says there are many methods to calculate pi, but the simplest to understand starts with the inverse tangent function.
Whoa up there, math cowboy. If inverse tangent function is the beginning of the simplest pi explanation, I'm going back to taxes!
So here we are, just more than a month away (for now; and still now) from Tax Day at the meeting of pi and taxes. Which is why 3.14 is this weekend's By the Numbers figure.
Tracking and tallying tax numbers: 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' tax identification numbers on our W-2 forms and the identifying numerals other entities, like investment accounts, that contribute to our taxable income.
And, of course, we have to take all those figures about our earnings and subtract from them the numbers representing expenses and deductions and credits on a variety of numerical forms to get to the most important amount of all, our final tax bill.
So this annual anniversary in celebration of pi is a good time to consider how to deal with all those tax numbers, especially when it comes to approximating them on your tax forms.
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, most of which is noted as itemized deduction claims on Schedule A. This includes the charity-related miles you put on your car as a volunteer deliverer of meals to shut-ins or the trips to the doctor that help push your medical claims over the 7.5 percent threshold (yes, tax extenders renewed at the end of 2019 kept this lower percentage in place through 2020).
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.
Round, but verify: So round 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 miles I'll need to walk this coming week to offset the pieces of pie I plan to enjoy in celebration of Pi Day!
You also might find these items of interest:
- 7 tax record keeping FAQ
- Save space and trees: Digitize your tax records
- Diligent, comprehensive record keeping saves the tax day
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