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Financial Planning / Tax Strategies
|Subject: Re: ERRONEOUS CONTRIBUTION TO 1999 TRADITIONAL I||Date: 9/6/2000 7:46 PM|
|Author: TMFExRO||Number: 39630 of 122300|
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. 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. 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.
First let's get some terminology straight. If you had $2,000 in taxable compensation, a/k/a earned income, you were eligible to make a $2,000 traditional IRA contribution. Because your are MFS with AGI over $10,000 you cannot deduct the contribution, but you can make it. See below for what to do about your return.
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. 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) 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.
See the response above. You do not need to withdraw the contribution and earnings. If you do make a withdrawal, you will be subject to the premature distribution penalty.
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 ? 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.
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. I have used Turbo Tax software for a couple of years now and until now, I have been very satisfied with its overall performance.
Frankly, even though I'm not a big fan of software, I'm surprised TT didn't catch this. Now, let's be sure it didn't.
Here's how your MFS return should look: no deduction for an IRA contribution and Form 8606 prepared showing the $2,000 nondeductible traditional IRA contribution. Double check your printed copy of the return to make sure it's wrong.
Now as for your remedy. If you've already determined that you'd be worse off filing jointly, I can't think of any alternatives. Prepare the 1040X with the 8606 and file them, paying the additional tax. IRS will bill you for the interest, which you will have time to pay without additional interest accruing. And don't forget the state, if yours has an income tax.
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