I made a nondeductible contribution to my traditional IRA in 2021, but my 2021 tax return doesn't have a Form 8606. Why?

[User030620]

I made a nondeductible contribution to my traditional IRA in 2021 (6k), and another nondeductible contribution to my traditional IRA in 2022 (6k). Looking back now, My 2021 tax return doesn't have a Form 8606. I went to try to amend my tax return on TurboTax, and saw that I definitely reported it in the software correctly...so there's nothing for me to even fix through TurboTax.

But my 2022 tax return does have Form 8606, but the listed total basis is 6,000. I'm not sure where I went wrong, but I think the total basis for 2022 should've been 12,000.

I also made a nondeductible contribution for 2023. So for my 2023 tax return, is my cost basis from previous years $6,000? Or $12,000? How do I correct what happened?

[Opus 17]

We can't tell you what happened in the past, and we can't see your returns.

Looking at form 8606 for 2021, line 2 (prior basis) would be zero and line 14 (new basis) would be $6000.

For 2022, line 2 (prior basis) would be $6000 and line 14 (new basis) would be $12000.

For 2023, line 2 (prior basis) should be $12,000 (based on your history).  

If you didn't do any conversions and are only reporting basis, and it doesn't change your tax owed or refunded, you can file an amended form 8606 for 2021 and 2022 by themselves without filing a whole amended return.  Be sure to use the correct version for each year.  

Start by checking your tax transcript for 2021 online to see what the IRS has on file for you.

https://www.irs.gov/individuals/get-transcript

For 2023, you can enter that you have a prior basis of $12,000 without having to amend first.  But make sure you keep records of your contributions and your form 8606.  You need to keep that for as long as you live (or until the IRAs are emptied out) because the IRS will not keep track of your basis, if you want to prove that a portion of your retirement withdrawals are non-taxable, the burden of proof is on you. 

[User030620]

Thanks! For looking at tax transcripts - is the correct one to look at "Wage and Income"? I do see my contributions under "IRA Contributions", though I don't see whether these were marked as deductible or nondeductible. It looks like I also made a 2020 contribution, but I only have the transcript for that and not the tax return. Regardless, it seems like that wasn't tracked in From 8606 either. Do I confirm that this was a nondeductible contribution by checking whether my MAGI for that year was over the deductible limit, or is there a way to see that in the transcript?

[Opus 17]

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@User030620 wrote:

Thanks! For looking at tax transcripts - is the correct one to look at "Wage and Income"? I do see my contributions under "IRA Contributions", though I don't see whether these were marked as deductible or nondeductible. It looks like I also made a 2020 contribution, but I only have the transcript for that and not the tax return. Regardless, it seems like that wasn't tracked in From 8606 either. Do I confirm that this was a nondeductible contribution by checking whether my MAGI for that year was over the deductible limit, or is there a way to see that in the transcript?

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You should be looking at your tax return transcripts.  For example, in 2021, the IRA deduction was on schedule 1, line 20.  The total of adjustments on schedule 1 is reported on schedule 1 line 26, which carries over to form 1040 line 10.  If you deducted the contributions, that would be reflected on schedule 1 and form 1040 line 10.  You might also have other adjustments on schedule 1, so you need to consider your return as a whole.  If you have a printout, compare the printout with the transcript.  For other years, the line numbers may be different but deductible IRA contributions are still on schedule 1, if you need to know the exact location, you can download PDFs of specific forms for specific years from the IRS web site.

Your tax return transcript should also include a record of form 8606 if you filed one.  

The wage and income transcript is probably only picking up form 5498 from the IRA trustee.  They know what you contributed but they don't know if you deducted it or not, that would only be on your tax return.  If you have no IRA deduction on schedule 1 and no form 8606 either, then you didn't report it properly.  You can either file an amended return to make it deductible (depending on income and other facts) or file an amended form 8606 to make it non-deductible.  Since form 8606 has a separate signature line, I believe you can file the amended 8606 by itself as long as it does not change your tax. 

[User030620]

Got it, thank you. Looking at my return transcripts, I don't see a deduction for 2020, 2021, or 2022. 

You can either file an amended return to make it deductible (depending on income and other facts) or file an amended form 8606 to make it non-deductible.

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I want to make sure I don't under/over report my nondeductible contributions, as I plan to do a Backdoor Roth IRA conversion that would be reported for 2024 taxes (which is why I'm trying to get all my ducks in order right now for 8606s). What's the best way to calculate whether my contribution for a specific year was deductible or nondeductible, if I can't rely on past reporting?

But make sure you keep records of your contributions and your form 8606.  You need to keep that for as long as you live (or until the IRAs are emptied out) 

 By records, do you mean my form 5498s from my IRA custodian?

[Opus 17]

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@User030620 wrote:

Got it, thank you. Looking at my return transcripts, I don't see a deduction for 2020, 2021, or 2022. 

You can either file an amended return to make it deductible (depending on income and other facts) or file an amended form 8606 to make it non-deductible.

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I want to make sure I don't under/over report my nondeductible contributions, as I plan to do a Backdoor Roth IRA conversion that would be reported for 2024 taxes (which is why I'm trying to get all my ducks in order right now for 8606s). What's the best way to calculate whether my contribution for a specific year was deductible or nondeductible, if I can't rely on past reporting?

But make sure you keep records of your contributions and your form 8606.  You need to keep that for as long as you live (or until the IRAs are emptied out) 

 By records, do you mean my form 5498s from my IRA custodian?

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I'm not sure I can help you much further.  The taxpayer is required to keep their own reliable records documenting any adjustments to income.  In this case, if you want to convert your IRA in 2024 and not pay taxes ("back door Roth"), you need to be able to prove to the IRS, if audited, how much of the contributions  were non-deductible.  You would normally do that by showing copies of your form 8606s, to prove that each year in question, your contributions were not deducted.  

In other words, your proof that your 20xx contributions were non-deductible would be form 5498 from the trustee showing your contributions, and your 20xx tax return that includes schedule 1 with no deduction, and form 8606 showing you declared the contributions as non-deductible.

Now you need to prove that prior contributions were also non-deductible.  That would mean form 5498, and your tax return with schedule 1 that does not have a deduction plus form 8606 showing the contribution was declared non-deductible.  

So my suggestion is to go back to whatever non-deductible contributions you can prove.  If that is 2020, then collect your 2020 form 5498 and tax return.  If your tax return does not have form 8606 but should have, you can file form 8606 by itself since it has a signature line.  Be sure to use the right year form.  Then go to 2021.  Add your prior non-deductible basis from the 2020 form 8606 to your 2021 contributions and make a new 2021 form 8606.  Then go to 2022.  Here you have an incorrect form 8606 that you will need to amend.  Then go to 2023.  Now you know the correct figure to include on line 2 (from the amended 2022 form 8606 line 14).  Add your 2023 contributions and proceed with filing your tax return.

In case the IRS asks questions, be prepared to show your tax return, form 8606 and form 5498 for each year. 

[User030620]

Thanks so much for your advice, I think I have a good understanding of what to do now!