Please help. Converted non-deductible Traditional to Roth IRA but stuck with filing

[DanaB27]

Yes, everything seems correct on both Form 8606 and the $5,420 taxes in 2021 is correct.

@dhuynh44

[dhuynh44]

@DanaB27 

Thank you.  Are you able to break down how the pro-rata rule is calculated?   She only contributed $4580 this year with a basis of $1899 from 2020, so why is $5420 taxed?

Does the 1099-R of $7200 factor into any of this?  If the $7200 is amount converted to Roth in year 2021; and my institution messed up with an extra $1000 recharacterized and supposedly converted back to Roth would this change the amount taxed if my 1099-R amount was lower?

Hopefully trying to understand more.  Thank you

[DanaB27]

You can see the pro-rata rule calculations on Form 8606 (sometimes TurboTax uses the Taxable IRA Distribution Worksheet instead).

She had a total basis of $6,479 in 2021 (basis from 2020 and contribution for 2021). The value and the amount converted each have a part of this basis allocated.  $1,845 of the conversion are allocated to the basis therefore $5,450 are taxable.

Only the Form 1099-R that reports the conversion factors into the calculation. Yes, if your Form 1099-R amount converted would be less then this would affect the calculation and the taxable amount would be less.

@dhuynh44

[dhuynh44]

@DanaB27 

Do you mind if I ask for my wife, why did they calculate the pro-rata rule thing for her 2020 return to get a basis of line 14 = $1899 if during year 2020 she did not have any pretax dollars in her traditional IRA?  Does it have something to do with having outstanding recharacterizations going into year 2021?  Just wondering… thanks 

[DanaB27]

Yes, it is because of her outstanding recharacterization.

@dhuynh44

[dhuynh44]

@DanaB27 

Hi Dana, my tax forms are supposedly coming in this week.  If they do not or are still missing some information, am I able to file an extension on Sunday 4/17?  Am I able to leave my payment in the mail by check on 4/18 and be ok?  Thank you

[DanaB27]

Yes. Please see How do I file an IRS extension (Form 4868) in TurboTax Online.

Yes, you can mail the check or pay online at the IRS website.

If you choose to mail your tax payment:

• Make your check, money order or cashier's check payable to U.S. Treasury.
• Enter the amount using all numbers ($###.##).
• Do not use staples or paper clips to affix your payment to your voucher or return.
• Make sure your check or money order includes the following information:
  • Your name and address
  • Daytime phone number
  • Social Security number (the SSN shown first if it's a joint return) or employer identification number
  • Tax year
  • Related tax form or notice number (IRS)

@dhuynh44

[dhuynh44]

@DanaB27 

Hi Dana hope you had a good weekend.  I was successful in extending the federal and AZ taxes.  After I get the new tax 1099–R forms, how do I go about submitting my completed and updated tax forms?  Is there a separate procedure?  

Also, I would assume or foresee myself owing less taxes than I paid in the extension as I will have less outstanding recharacterizations.  How does the government give refunds for extensions?  Thanks 

[DanaB27]

Thank you! I hope you did too. You will open your 2021 return and continue your 2021 tax return as usual.

TurboTax should have the payment listed as payments with extensions. You can check the entry and edit it if needed:

1. With your return open, click on "Search" in the top right and enter "tax payments"
2. Click the "Jump to" link
3. Choose "Start" next to “payments with extensions”

@dhuynh44

[dhuynh44]

@DanaB27 

So I used TurboTax to help prepare the form; however I did direct pay through the IRS website to pay as it said they used the payment as an automatic extension form. My question is when I’m ready to adjust my tax return in TurboTax, how do I go about doing that?  My taxes owed on TurboTax right now are $0.  And do I simply e-file or mail the new return in when I’m done or do I have to go through their IRS website?  

After I adjust my 1099-R will TurboTax show the new amount due or owed in top or will it still show $0 and somewhere else show what my new amount owed will be?  Thanks 

[DanaB27]

After you entered the extension payment with the steps above then you can continue working on your tax return when you get the corrected forms. Depending how these forms change your return they can change your refund/balance due. You still will file the same Form 1040 and can see the refund on line 34 and balance due on line 37. You will be able the e-file your return.

@dhuynh44

[dhuynh44]

@DanaB27 

Hi Dana, hope you had a great weekend.  I wanted to give you an update, and hopefully get some of your advice.  

So after speaking with my institution, since the double recharacterizations were requested (not sure why) and processed, the tax forms I currently have will have to be used going forward, and it is costing me more due in taxes of $800-900 between my wife and I.   

I recharacterized $1000 in 2020 and this same $1000 in 2021.  This $1000 is essentially a double recharacterization and is outstanding for year 2020 (even though I didn’t contribute another $1000 to Roth).  

The initial recharacterization of $1000 in 2020 was entered as a 1099-R I received, and I put on my amended 2020 form that I had an outstanding recharacterization of $1000 and recharacterized this whole $1000.  

So essentially I contributed only $1000 to Roth in 2020, but recharacterized $2000 (2020 and 2021).  Is it even possible to enter a recharacterization amount greater than what was contributed?

Do you have any recommendation on how to report this?  I feel that I should maybe file the way we have been talking about this whole time and report the outstanding recharacterization of $1000. 

Thanks 

@DanaB27 

[dhuynh44]

@DanaB27 

Hi just curious if you’re still available or if anyone else has insight?  Thank you 

[fanfare]

@dhuynh44 

As I explained in your other thread on this same question...

There is no tax hit  per se to do a recharacterization.

The total of all distributions goes in the A column, the taxable amount, if any goes in the B column

( a recharacterization is not a distribution; it is a reassignment of a contribution to a different type of account. )

You explain complex situation by attaching an explanation to your tax return.

TurboTax CD/download lets you explain and also e-File.

If you can't figure out what you did, how are you going to explain it to the IRS?

[dhuynh44]

@fanfare 

Thanks for actually responding to me.  So yes the recharacterizations don’t cause any tax burden, however since I did them in 2021 for previous year 2020 it created an outstanding basis, which I guess does get taxed.  

my issue is this recharacterization done in 2021 was a double, meaning it was already recharacterized in 2020.   Somehow my institution let it go through again in 2021.   All my tax forms reflect this double recharacerization, and after speaking with them they won’t change any forms.  

So, my only thought is to report it as on my tax forms even though it was a mistake.  I will have to pay more taxes on it unfortunately.  Any thoughts?  

thanks