TurboTax significant rounding error

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summit
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TurboTax significant rounding error

Post by summit »

As a loyal TurboxTax user, this would have been my 14th year filing with them. However, I've run into a considerable issue.

After I imported my 1099-B from Schwab, TT listed my realized gain/loss as being $15 different from what the 1099-B states. Turns out, TT is rounding the figures from each sale individually before adding them. I realize the IRS allows you to round the final figure after calculations, but I do not believe rounding individual figures before calculation is allowed, and is, of course, mathematically inaccurate. For someone who trades frequently the final figure could be grossly different from the 1099-B. I do not know why TT has changed this for 2020. In prior years they did the rounding as one would expect.

I wanted to point this out for anyone else who uses TurboTax. I will be switching to a competitor's product this year, unfortunately. I can't in good conscious file a tax return with different figures than what the 1099 states. On their help forum TT has double-downed and said this pre-calculation rounding is allowed by the IRS... Anyone know better than me?
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stan1
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Re: TurboTax significant rounding error

Post by stan1 »

You may want to review this thread:
https://ttlc.intuit.com/community/retir ... /00/347174
livesoft
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Re: TurboTax significant rounding error

Post by livesoft »

TT has been doing that for years and years. When I last used TT, the IRS reduced my refund by $1 that I traced to a TT rounding error.
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summit
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Re: TurboTax significant rounding error

Post by summit »

Follow-up:
Just got off the phone with a rep from TT. She said they have received many complaints about this, but unfortunately no plans to change for 2020. She said they will be changing for 2021. She said I can't even go in and fix individual transactions because their 1099-B input fields do not support decimals. Consequently, my wash sale losses under .50 have been changed to .00 and can't be modified. This doesn't seem allowable by the IRS, to just ignore a wash sale loss because it's less than .50, right?
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petercooperjr
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Re: TurboTax significant rounding error

Post by petercooperjr »

Here's what Publication 17 says:
Rounding off dollars. You can round off cents to whole dollars on your return and schedules. If you do round to whole dollars, you must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3.

If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.
Now, when I first read that rounding was optional (many years ago), I'd assumed that any reasonable tax software package would want you to enter in the full amounts, so that it could calculate it both ways (rounding or not) and give you whichever one gave you the higher refund. And yet I've never seen one actually do it that way.

I'm not familiar with TurboTax (I use Free File Fillable Forms nowadays), so I don't know if you can do it this way, but do you get an answer you like better if you have the gains/losses listed directly on Schedule D lines 1a/8a rather than having each transaction listed on Form 8949? It may be that (per the IRS instructions) you can pick the rounding method you like better by deciding which form to list them on, since you only round when putting numbers onto an actual form.
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summit
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Re: TurboTax significant rounding error

Post by summit »

Since the IRS says "If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts and round off only the total," to my understanding this confirms that TurboTax rounding individual transactions before calculating the total is an error.
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Katietsu
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Re: TurboTax significant rounding error

Post by Katietsu »

Why do you think it is not allowable? It is correct to report each transaction individually. It is correct to round off each transaction. It is correct to round down anything less than 50 cents into a zero. I do not think anything violates any tax law. I would be interested in hearing from someone who disagrees.

When you are entering a capital gain transaction on a line on the 8949, you are NOT adding two accounts together to determine the numbers to put on that line. So I do not think the quote in the above post applies.

If you have a very large number of transactions, it is pretty likely that you final numbers would still be close because rounding up and rounding down should should happen pretty equally if all is random.
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summit
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Re: TurboTax significant rounding error

Post by summit »

Katietsu wrote: Fri Feb 19, 2021 11:18 am Why do you think it is not allowable? It is correct to report each transaction individually. It is correct to round off each transaction. It is correct to round down anything less than 50 cents into a zero. I do not think anything violates any tax law. I would be interested in hearing from someone who disagrees.

When you are entering a capital gain transaction on a line on the 8949, you are NOT adding two accounts together to determine the numbers to put on that line. So I do not think the quote in the above post applies.

If you have a very large number of transactions, it is pretty likely that you final numbers would still be close because rounding up and rounding down should should happen pretty equally if all is random.
With the way TurboTax has done their math after rounding each sale, my cost basis and gain totals are both different from what my 1099-B states by a non-trivial amount. I feel like I have never had this issue with TT in prior years. Anyone have experience with other tax software and know how they handle rounding?

I am not trying to be difficult or obtuse, but what made me take note of this in the first place is I like to always verify that the totals match my original tax document after I import data into TT to make sure the import worked correctly. I was surprised and thrown off when the totals in TT for my 1099-B were off by so much from what the actual document states...
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Katietsu
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Re: TurboTax significant rounding error

Post by Katietsu »

I think that you are off by more this year is just chance. Remember that if you have a $1000.49 transaction plus a $2000.51 transaction the result is the same with and without rounding. Sounds like you just had more of the less than 50 cent transactions than the 50 cent or more transactions this year.

Did you read the discussion referenced by stan1?

You can enter only category totals (eg 1009-B, long term, basis reported) into TurboTax if you want. You will get instructions on supplying a statement for the details.
Last edited by Katietsu on Fri Feb 19, 2021 11:55 am, edited 1 time in total.
pizzy
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Re: TurboTax significant rounding error

Post by pizzy »

Isn't $15 a trivial amount?
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petercooperjr
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Re: TurboTax significant rounding error

Post by petercooperjr »

I guess what we're not quite understanding is (or at least I'm not understanding, since I'm familiar with the forms but not Turbotax), does Turbotax correctly list each sale on Form 8949? If you're filing 8949, each sale is listed separately, and rounding would happen for each entry separately. So it sounds to me like Turbotax is handling things in a correct way, even if it's not the way you'd prefer.

If it's rounding something before adding totals to put on a form, then it may be doing something weird, but I don't see it from what you've described yet.
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neurosphere
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Re: TurboTax significant rounding error

Post by neurosphere »

Can you just summarize the transactions in the software and upload a pdf of 1099-B? That's what I do with TaxAct, which does not import 1099-B (as far as I know or from the brokerages i've used).
https://www.taxact.com/support/22389/20 ... in-program
#5 - Form 8949 Attachment Option
The IRS allows taxpayers to enter summary total amounts if their transactions are already listed on a Form 8949 or similar statement. If you have a Form 8949 attachment, you will simply enter the summary totals for each reporting category into TaxAct. If you have a PDF version of this attachment, you will be able to attach the statement to your return during the electronic filing steps. If you have a paper copy of your Form 8949 attachment, you will still be able to file electronically but you will need to mail this statement along with Form 8453 to the IRS.
I think Katietsu has mentioned this option as well, if i'm reading their post correctly.
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summit
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Re: TurboTax significant rounding error

Post by summit »

Thank you all for your responses. Sounds like things might be correct. I will try proceeding and see what happens. I cannot look at individual forms at this point (TT online requires you to finish and pay first, I believe), but I will check the 8949 once I can view it. I do not really understand much about taxes since I always use TurboTax, so this is all a good learning opportunity for me.
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Chip Munk
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Re: TurboTax significant rounding error

Post by Chip Munk »

summit wrote: Fri Feb 19, 2021 10:18 amTurns out, TT is rounding the figures from each sale individually before adding them. ... I do not know why TT has changed this for 2020. In prior years they did the rounding as one would expect.

I wanted to point this out for anyone else who uses TurboTax.
Thank you for posting this! I noticed this too after wasting time looking for data entry errors when some of TTax's totals were off by a few dollars from my spreadsheets and 1099s. Once I realized I had entered all of my data correctly but that they had changed how TTax handles rounding, I wondered why they felt the need to change it. I found it confusing that for the first time ever, TTax's totals no longer matched the numbers on my 1099s as they always have in the past. The phrase "If it ain't broke, don't fix it" comes to mind.
nivin
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Re: TurboTax significant rounding error

Post by nivin »

Given that TT 2020 is rounding individual 8949 entries, are there any 2020 tax software options (with efile) that do not round? From prior years, my recollection is that both TaxAct and H&R Block also round each 8949 entry -- this was one of the main reasons I switched to TT, along with better Form 1116 handling.
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petercooperjr
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Re: TurboTax significant rounding error

Post by petercooperjr »

nivin wrote: Sun Feb 21, 2021 3:47 pm Are there any 2020 tax software options (with efile) that do not round?
Well, if you use Free File Fillable Forms directly (or maybe with tax software that lets you play with the forms more directly), for any sales with basis reported to the IRS (8949 box A or box D) that you don't need to make adjustments for, you could choose to either report them directly on Schedule D (so adding up your brokers' total, then rounding, and then putting just the total on a form), or you could choose to report each sale on a form 8949 separately (rounding each individual sale and then putting the total of the rounded numbers onto Schedule D).

I suspect every tax software rounds what gets put onto the forms, though, since that's the "right" way to do rounding. (I still don't understand why tax software and efiling and such seems to require rounding, whereas on paper forms one gets a choice, when computers ought to be able to handle adding up unrounded numbers just as easily as rounded ones. But that seems to be how it works.)
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Re: TurboTax significant rounding error

Post by summit »

I have been monitoring the chatter on TurboTax’s help forum and there is thread after thread of people complaining about this transaction level rounding. I went back and checked my 2019 return. It was not like this last year. Definitely a change.

And what I’m reading is if you have wash sales, which I do, you can’t even do summary report and mail 1099-B. So as I understand it, unless TurboTax fixes this, people with wash sales cannot file with them this year.

My hope is as more people get started on their taxes now after having received 1099-Bs, the level of complaints will be such that TurboTax has to fix this.
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Re: TurboTax significant rounding error

Post by petercooperjr »

summit wrote: Tue Feb 23, 2021 5:56 pm I went back and checked my 2019 return. It was not like this last year. Definitely a change.
So on last year's return, your entries on Form 8949 were not rounded, but the entries on all your other forms were? Or was nothing rounded last year at all?

I didn't think you could round some form entries but not all, though it may be that the IRS enforces or describes rules differently for e-file providers than they do in the plain form instructions. Or I might be misunderstanding the general rounding instructions.
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Re: TurboTax significant rounding error

Post by Direwolf14 »

summit wrote: Tue Feb 23, 2021 5:56 pm I have been monitoring the chatter on TurboTax’s help forum and there is thread after thread of people complaining about this transaction level rounding. I went back and checked my 2019 return. It was not like this last year. Definitely a change.

And what I’m reading is if you have wash sales, which I do, you can’t even do summary report and mail 1099-B. So as I understand it, unless TurboTax fixes this, people with wash sales cannot file with them this year.

My hope is as more people get started on their taxes now after having received 1099-Bs, the level of complaints will be such that TurboTax has to fix this.
Wash sales are always rounded as they must appear on the 8949. It's only the Schedule D 1a and 8a totals that are adversely affected by rounding per transaction. I'm not sure about TurboTax, but it is within the IRS rules to skip the 1a/8a summary total lines and instead report every transaction on the 8949, in which case there is nothing wrong with rounding them individually.
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Re: TurboTax significant rounding error

Post by cas »

petercooperjr wrote: Wed Feb 24, 2021 10:06 am So on last year's return, your entries on Form 8949 were not rounded, but the entries on all your other forms were? Or was nothing rounded last year at all?
Doesn't affect me personally, but I was a bit curious, so I looked.

For 2019 taxes, TT didn't round on the 8949 until it summed everything up and put it on the Schedule D.

For 2020 taxes, TT rounds at the level of each individual transaction Form 8949 Box d "Proceeds" and Box e "Cost or other Basis".

From my dim memory of Statistics 101 ... and assuming an equal probability of the cents part of "Proceeds" and "Basis" being 0 to $.49 vs $0.50 to $0.99 ... I think that means that TT created the scenario of having a series of 2-coin heads/tails flips. On each transaction ... compared to the way they did it last year ... I think they have a 25% chance of that transaction's cap gain being $1 up, a 50% chance of being exactly the same, and a 25% chance of being $1 down.

For most boglehead-ish investing, with a very limited number of 8949 transactions in a year, this is likely to make no difference whatsoever in tax burden. It has the possibility of making a couple of dollars difference in what ends up on Schedule D.

But I'm wondering if it is interacting in an unexpected way with the new Kool Kids easy trading platforms, $0 commissions, and pandemic boredom.

The loudest people over on that TT support thread mentioned above seemed to be people (day traders?) with hundreds or thousands of transactions. (I have no idea where OP summit fits in or not with that. For all I know, he/she had only 15 transactions, but managed to hit the "jackpot" of having 15 heads-heads 2-coin-flips in a row.)

Summing up hundreds or thousands of a 2-coin-flip-series for each day trader, over the whole population of day traders, would theoretically generate a pretty wide Bell curve of possible results at the level of the individual day trader. (Across the whole population of day traders, you'd expect the average to hit the middle of the Bell curve and make no difference.) Biggest probabilities for each individual day trader would still be in the center of the curve where it would make minimal difference in tax burden. But there would be smaller probabilities out towards the tails of the Bell curve where someone could get somewhat different tax burdens using the old-vs-new rounding approaches.

And that is assuming that the cents portion of the Proceeds and Cost Basis was like a coin flip. I couldn't really tell, but it seemed like maybe some of the loudest objectors over on the TT thread were maybe somehow doing something that was preferentially generating a bunch of wash sales in between $0.00 and $0.49. I didn't really think that through, but I suppose something like that, if true, could really skew the distribution curve of probabilities so that it is a lot more likely that the two rounding methods, combined with day trading, might produce very different results.

I have no idea what the IRS thinks about the 2 rounding approaches.

I doubt most Bogleheadish type investors, with just a handful of 8949 transactions, will find much to get riled up about either way.
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Re: TurboTax significant rounding error

Post by cskollmann »

cas wrote: Wed Feb 24, 2021 12:39 pm I doubt most Bogleheadish type investors, with just a handful of 8949 transactions, will find much to get riled up about either way.
To add a little more anecdata, I ran into this rounding issue not on an 8949, but on my W2s this year. I maxed out my 401k but because of switching jobs, ended up with contributions split between two employers. Each happening to end in $0.50. So Turbotax rounded them and told me I had over contributed to my 401k for the year even though I hadn't in actuality. Searching the turbotax site for answers, I found this had happened to others and the suggested fix was to edit the W2 field in Turbotax.

How can that possibly be acceptable? :oops:
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Re: TurboTax significant rounding error

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cas wrote: Wed Feb 24, 2021 12:39 pm And that is assuming that the cents portion of the Proceeds and Cost Basis was like a coin flip. I couldn't really tell, but it seemed like maybe some of the loudest objectors over on the TT thread were maybe somehow doing something that was preferentially generating a bunch of wash sales in between $0.00 and $0.49.
If you buy stocks in blocks of 100 shares, the difference between purchase amount and sales amount would be an exact number of dollars, and the securities transaction fee would be less than $0.50. Thus, for every such trade, your capital gain would be rounded up.
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Re: TurboTax significant rounding error

Post by gobel »

What's even more confusing is that in interview mode, the sums of gain/loss etc are correct to the dollar for me (so they must be doing rounding after summing), but when I go into forms mode the same number is off by $5. Ie. the amount that shows up in interview mode isn't even the amount on the form! (the total taxable amount is the same though, making the math in interview mode look like it's off by $5 when I manually add up the numbers). That's really misleading the user.
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Re: TurboTax significant rounding error

Post by HootingSloth »

pizzy wrote: Fri Feb 19, 2021 11:53 am Isn't $15 a trivial amount?
Ding ding ding. One of two things will happen: (i) Nothing; (ii) the IRS's computer that automatically matches your return to the 1099-B they receive will spit out a very slightly different number for your ultimate tax liability and will send you a letter stating the difference. In case (i), you forget that this ever happened. In case (ii), you either pay the tiny difference or enjoy the tiny refund.

Tax software introduces bigger and more egregious errors than rounding discrepancies with a nonzero frequency. If you want to avoid them, then pay an accountant or do your return by hand. Of course, accountants aren't perfect (and you might not be too!). So, learn to live with some minor discrepancies and just do your best to pay what you owe.
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