Seem to be double taxed

[tobyicnoise]

Hi I am currently trying to file my tax report using turbotax premier. 
I had to do recharacterize/conversion (roth to traditional and back to roth ira due to unexpected financial change). 
I received 4 forms of 1099R(marked for 2022) (2 for me and 2 for my wife - we both did the same thing R to T and T to R ira). Although they are marked 2022, but for 2021. 
since we knew our income(agi)  will not be greater than 200k this year thus we contributed to our roth IRA account. 

I did import forms from the fidelity (my retirement bank) then the 4 forms were automatically imported. 
when I when through the turbo tax, it shows me that I need to pay the tax due to taxable income, which is the sum of the recharacterized IRAs (me and my wife - joint filing). 

why is the total of the recharacterized/converted contributions

are taxable? Since I payed the tax for the roth ira (before recharacterization), it is double taxed. 

[fanfare]

it would be easier if you do not import those 1099-Rs and just report the net result, because the unwanted effect have to be unwound with the proper Q&A which can be troublesome.

@tobyicnoise 

[fanfare]

recharacterization: the original amount to the first IRA you report as contribution to the second IRA, earnings are ignored.
report this on your tax return for the year during which the contribution was made.

return of excess contribution:

before tax due date including extensions: positive earnings allocable to the excess are taxable on the Line 4b for the year of the contribution. negative earnings are ignored; therefore, do report the entire requested amount as returned .

positive earnings removed are penalized 10% if you are under age 59 1/2.

after tax due date including extensions: you distribute the excess amount being carried forward on 5329,

(or offset it with currently allowed contribution) .

Earnings stay in the Roth account.

--

if you are doing a backdoor Roth,  the contribution into the Traditional IRA has to be designated non-deductible

@tobyicnoise 

[fanfare]

since you are not doing a return of excess contribution,

you can ignore that part.

@tobyicnoise 

[tobyicnoise]

Thank you, Fanfare.

You mentioned that it is easier not to import 1099R and just report the net result.

Where is the net result that I need to report to?

And, do you mean that if I do not include 1099R in Wages & Income, it is okay as long as I report the net result somewhere (?) ?

Thanks!

[fanfare]

to show the grand total of distributions on Line 4a and make the IRS happy, include all 1099-Rs.

the recharacterization is a contribution, obviously not taxable.

assuming your Traditional IRA was empty before,

the conversion to a Roth is not taxable if the contribution above was marked non-deductible.

Net result : no tax, line 4b should be zero.

if you had money in the Traditional IRA before, you can't do a backdoor Roth so there would be tax on the Roth conversion, prorated against your IRA  basis.

@tobyicnoise 

sorry for any confusion 

[tobyicnoise]

Thank you again for quick response.

I just realized that my 1099R with distribution code 2 and IRA/SEP/SIMPLE marked as X has non-zero taxable amount. This 1099R is for conversion (Traditional to Roth conversion) and I think the taxable amount should be 0. This is fundamentally why turbotax makes me pay double taxes.

The confusion part is that this 1099R (marked 2022) is for 2021 contribution (Roth to Tranditional (recharacterization) and back to Roth (conversion)). However, the recharacterization and conversion for this 2021 was done in 2022. Thus, the forms marked as 2022 version.

Also, in turbotax, to fill out 8606 form, I had to say

* Traditional IRA and Roth IRA section: I need to check both Traditional and Roth IRA

* Tell use how much you contributed: do I need to put the recharacterized amount here?

Since the recharacterization was for 2021, I also contributed Roth for 2022. I expected that my MAGI is not going to be over the limit.

Then, the turbotax think I contributed both recharacterized contribution (again it was for 2021) and roth ira contribution (for 2022). And, it tell me that I contributed more than my combined limit for 2022.

I don't know how to deal/split this two event. Thank you!

[fanfare]

if you recharacterized 2021 you have to put the contribution and its non-deductible status on 2021 Form 8606.

if you did not file that way you have to amend 2021 tax return.

if you converted to a Roth in 2022, that is not a contribution.

you should see  a check in the "taxable amount not computed" check box on your code 2 1099-R.

Reason: your tax on the conversion  is computed on 2022 Form 8606 in conjunction with 2021 Form 8606.

@tobyicnoise 

[tobyicnoise]

Hi Fanfare

thanks for all answers. 

I see nonzero value in 1099-R (traditional, distribution code 2 - conversion). My case it says $5,298.47. 

I did recharacterize it in 2022 before tax due date for 2021 contribution. 

I try to change form 8606 to make sense (e.g., taxable amount to zero because I first contributed to roth ira in 2021 and then recharaterized it later. Thus I paid the pay when I contributed to Roth ira. ) but it won’t allow me to do it. 
Spent all day long today to figure this out. 

Thanks. 

[fanfare]

" I first contributed to roth ira in 2021 and then recharaterized it later."

that makes it a contribution into the second IRA, your Traditional IRA.

"My case it says $5,298.47. "

assuming you put in $6,000, you recharacterized $6,000 and you have to state that. The loss does not count.

that makes your basis $6,000.

If you make the contribution non-deductible, TurboTax will put $6,000 on 2021 Form 8606 Line 14

that amount comes over to 2022 Form 8606 Line 2.

Your conversion is now untaxed.

when you convert $5, 290.47, you will have a remainder basis in IRAs and a final value of zero.

Note: this all assumes you had nothing in your Traditional IRA to start with.

since you are reporting two years together, Turbotax doesn't have the prior form to import,

you have to tell it the prior years basis when doing 2022.

That's what I meant originally that the Q&A responses would be tricky.

[fanfare]

File Form 4868 to request more time to figure this out.

You don’t need to submit Form 4868 if you make a payment using the IRS
electronic payment options.

Your extension will be automatically processed when you pay part or all of your estimated income tax
electronically. You can pay online or by phone.

any  amount will do.

Select "EXTENSION".

@tobyicnoise