The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: ERRONEOUS CONTRIBUTION TO 1999 TRADITIONAL I||Date: 9/6/2000 7:35 PM|
|Author: TMFTaxes||Number: 39628 of 125861|
<<For the 1999 tax year I elected a filing status of married-filing separately for both me and my wife. Based on our individual incomes and deductions this filing status provided us a larger refund then filing married-jointly as we have done in the past. The larger refund was confirmed by using my What-If Worksheet within my Intuit Turbo Tax software.>>
Hopefully you also understand community property laws (if you live in a community property state), since a married-separate return can get really complicated and provide very limited relief in that situation. You can read more about this issue in the Taxes FAQ area.
<< Unfortunately, what I overlooked (as well as my TURBO TAX SOFTWARE to my dismay) was that my $2000 IRA contribution [which was made in Feruary 1999] is not allowed due to my income being over $10,000. >>
Right...this assumes of course that you are covered by your employer retirement plan. If you are NOT covered by a qualified plan, all bets are off on the $10,000 limitation for married-separate filing. And this is just for a DEDUCTIBLE traditional IRA. Even if you are over the top of the income limits, you can still make your IRA deduction non-deductible.
<<Fortunately I did not make an IRA contribution for my wife. I have not yet been audited by the IRS , but I am sure it's probably just a matter of time.>>
Depends upon circumstances. But if your return is incorrect, it would be in your best interest to correct it.
<<I have reviewed this message board for possible answers and have come to the conclusion that I will probably have to file an amended return [1040X] for my 1999 tax year.>>
Sounds right. Remove the deduction for your $2k IRA contribution, declare it a non-deductible contribution, complete Form 8606 to show your "basis" in your non-deductible IRA, pay the tax and interest and you're done.
<< However, the trustee of my IRA is a discount brokerage firm and therefore I will probably have to provide them with some kind of form to withdraw my contribution plus any accumulated earnings on the $2000 (which is probably another can of worms)>>
I'm not sure that this is what you want to do. Simply take a non-deductible contribution. Amend your tax return. There is NO $10,000 AGI limitation for a non-deductible traditional IRA.
<< Based on my research, I don't qualify for a Roth IRA and even if I could somehow transfer the $2000 contribution to a Traditional Non-Deductible IRA, that still would not reduce my tax liability for 1999.>>
But your tax liability isn't going to be reduced under any circumstances. Your best bet would be to amend the return, pay the additional tax and interest and keep your IRA as a non-deductible traditional IRA.
<<My question is? ...is there any other options available to me which I may have overlooked which would reduce or eliminate my additional tax liability which I roughly calculated to be a little less than $1000.00 ? >>
None that I know of. You've simply basically overstated a deduction. If your not allowed that deduction, you have to give it back. That'll increase your tax. I'm not sure how you arrive at the $1,000 amount. That would indicate a 50% tax rate...and we're not quite that high yet. So you might want to double check your computations.
<<If I amend my return to a filing status of married-filing jointly my additional tax liability will be about $1400 even with the then eligible Traditional IRA! Any advice from TMFTaxes, TMF ExRO or any Knowledgeable FOOL would greatly be appreciated.>>
I can't comment on what your revised liability might be, since I can't see the numbers.
<<Although I accept responsibility for this error, I am really kind of PO'd that my TURBO TAX software did not at least RED-FLAG this error during it's "Final Review" of my tax forms for any errors or omissions.>>
Obviously, you forgot to check a box somewhere in the program. My guess is that there is still some misunderstandings on the entire issue.
Hope this helps...
|Copyright 1996-2017 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|