Started Trad IRA last year. Accountant didn't file 8606.

[rajaditya_m]

I have a situation that I found many people to have an issue with. Last year I had the full $6000 contribution to Traditional IRA but I didn't deduct it from tax because my AGI exceeds the amount that I needed to make this deductible. So I should have filed 8606 but my CPA didn't.

Cue this year(2021), I made another $6000 contribution and then rolled it over to a roth IRA (backdoor roth). Now I am being charged tax for the past years amount since I didn't file the 8606 that I could have used to show the basis for tracked non-deductible Trad IRA contribution. 

(I am using turbotax premier this year, last year I used a CPA).

My question is the following :

- I know we can file the 8606 form late and there may be a small penalty($50) that I am ok with. Can I do that right now and then do my taxes sometime at the end of this month ? Or should I wait a bit for that form to be processed but then I heard this form takes 4-8 months to be processed. So I definitely cannot wait that long. 

Any suggestions ? 

[FangxiaL]

The fact that the 8606 form was not filed does not mean that your basis in your Tradtional IRA is zero. If you entered your Backdoor Roth conversion properly, you should not pay any taxes on the first $6,000 or the 2nd $6,000.

Please clarify: Did you convert $12,000 to Roth IRA?

[rajaditya_m]

Thanks for the reply. I converted the entire $12000 + gains to Roth IRA. As I understand I will only need to pay tax on the gains.

My previous years basis as per the form 8606 should be $6000. But I didn't file it so I put the basis as $0. 

[FangxiaL · Accepted solution]

You did not take the deduction, so your basis is $6,000, not $0. You did not file Form 8606, you can file it by itself without amending your return. It won't change the fact that you did not deduct $6,000 from your gross income.

Follow the two-step process to properly enter your backdoor Roth conversion:

Step 1: Enter the Non-deductible contribution to a Traditional IRA:

1. Open your return if it's not already open
2. Inside TurboTax, search for ira contributions and select the Jump to link in the search results
3. Select Traditional IRA on the Traditional IRA and Roth IRA screen and Continue
4. Answer No to Is this a Repayment of a Retirement Distribution?
5. On the Tell Us How Much You Contributed screen, enter the amount contributed and continue
   • Enter $6,000 for Your total 2021 traditional IRA contributions
6. Answer No on the Did You Change Your Mind? screen
7. Answer No on Any Excess IRA Contributions Before 2021?
8. Answer Yes, I made and tracked nondeductible contributions to my IRA, or No, I did not make and track nondeductible contributions to my IRA. If you don't have any other Traditional IRA accounts, you can answer Yes
9. Enter $6,000 for Total Basis as of December 31, 2020 on next screen
10. Answer the questions on the following screens, until you reach Choose Not to Deduct IRA Contributions. Select Yes, make part of my IRA contribution nondeductible and enter $6,000 in the box. 

Step 2: Enter the Conversion from a Traditional IRA to a Roth IRA

 Inside TurboTax, search for 1099-r and select the Jump to link in the search results

1. Answer Yes to Did you get a 1099-R in 2021?, then Continue
   • If you land on Your 1099-R Entries screen, select Add Another 1099-R
2. Select how you want to enter your 1099-R (import or type it in yourself) and follow the instructions
3. Answer None of these apply when you reach the screen Do any of these situations apply to you?
4. Select I converted some or all of it to a Roth IRA on the Tell us if you moved the money through a rollover or conversion screen
5. Next, choose Yes, all of this money was converted to a Roth IRA
6. Continue answering questions until you come to the Your 1099-R Entries screen

To check the results of your backdoor Roth IRA conversion, see your Form 1040:

1. On the left side of your screen, select Tax Tools, then Tools
2. Under Tool Center, select View Tax Summary
3. On the left side of your screen, select Preview my 1040
   • Your backdoor Roth IRA amount should be listed on Form 1040, Line 4a  as IRA distributions
   • Taxable amount should be zero unless you had earnings between the time you contributed to your Traditional IRA and the time your converted it to Roth IRA, then the earnings would be taxable
   • Schedule 1, Line 20 IRA deduction, should be blank
4. Select Back on the left side of your screen to return to where you left off in TurboTax

[dmertz]

Yes, you'll need to file a 2020 Form 8606 if the traditional IRA contribution for 2020 was not deducted on Schedule 1 of your 2020 tax return.  This needs to be done separately from filing your 2021 tax return, so you should do it now.  Although Form 8606 can be filed stand-alone, I would file it along with Form 1040-X to show that it has no effect on the rest of your 2020 tax return.

In 2021 TurboTax, indicate that you made nondeductible contributions enter $6,000 as the amount of your nondeductible traditional IRA contributions made for prior years, shown on your newly filed 2020 Form 8606 line 14.  The result on the 2021 Form 8606 will be that your basis from 2020 will reduce the taxable amount of your Roth conversion.

Without the 2020 Form 8606 being filed, the IRS will not recognize the basis from your contribution for 2020.