12K IRA Withdrawal 2010 3K Contribution Deductable??

[SFBOB]

Anyone not to tired willing to try this one in your software. Taxpayer withdrew 12K in January 2010 and then made a contribution prior to filing the 2010 return in February 2011. W/2 income was 100K. I get a 9K rollover amount on 1040 Page one Line 15B. Sounds strange to me. Then I get a form 8606 showing a 3K nondeductable contribution.
An associate using Lacerte put the example in and got 12K taxable Line 15B and a 3K deduction on 1040 Page one Line 32 IRA deductions.
I would appreciate a feed back. I tried this in 4 years of my software and get the same answer. I like my sofeware and no not want to give them a bad name. Please try on your software for me. Thanks Bob

[oceanlovin'ea]

What is filing status?

Linda, EA

[oceanlovin'ea]

This is how I entered the information:

Single
wages - 100,000.00
1099R pension distribution - 12000.00 code 1
adjustments - 3000.00 ira deduction - not covered by plan at work

1040 has AGI of $109,000.
Lind 7 - 100,000.
Line 15b - 12000.
Line 32 - 3000.00

I am using TaxslayerPro software. Hope this helps you.

Linda, EA

[SFBOB]

DOB 1-1-1949 Code 7 Single

Open a form 8606 in your return and see if that will cause the contribution to be Non Deductable. Also Code 7, not Code 1,then check the 1099R input as IRA withdrawal.Thanks for your help.If I had not tried 4 years of my software with the same example, I would sure say the software is wrong. This is my first time in 23 years with a client that makes a contribution in the same year as a withdrawal. Thanks for another try. Bob

[oceanlovin'ea]

If you go to form 8606 you are telling the program that the contribution was non deductible. I didn't even go to that form to begin with.

But when I did go there, I didn't enter the contribution only the distribution. If his contributions have always been deductible I see no reason for using the form.

But there may be something I don't know since I have never had the situation before.

Are you calling it a nondeductible contribution?

Linda EA

[SFBOB]

I am entering the contribution on a Line 32 worksheet.

The thing about this is that Lacerte reports this like you report it. 12K taxable on line 15B
And the contribution as deductable on line 32 at 3K.
I will put the taxpayer on extension and get my software company to address the problem. I was really surprised when I tried the same example on 2004,2007 2008 2009 and 2010 with my software. I would still prefer not to say the name of my software, other than that is owned by CCH. They should know what they are doing, RIGHT?

[dyne]

I entered the data in Drake Tax Software and got a taxable amount on line 16a of
$12,000 and a penalty on line 58a of $1200 and an IRA deduction on line 32 of $3,000.
I entered the $3,000 IRA contribution on form 8606 in the area designated:
Total IRA contribution made for 2010. This appears correct to me.

[SFBOB]

Thanks Dyne

Thanks for the Drake input. The reason you got $1200 penalty, was that I had not told you the taxpayer is 61 years old. Thanks a bunch. I still like my software and will contact them with your data. I will put my client on extension for 2010 until I get this resolved. Thanks to all Bob

[SFBOB]

Wow!!! do I have egg on my face.

The reason the contribution is nondeductable is because the taxpayer is in a 401K retiremant plan. Box 13 on the W/2 has the retirement plan box checked. The phase out for the contribution to be deductable begins at $56,000 and the deduction is fully phased out at $66,000 for a single taxpayer.
The result for the taxpayer is what he wanted. The software reduced the taxable amount of the IRA withdrawl of $12,000 to a taxable amount of $9,000. My software automatically opened a form 8606 and treated the 2010 contribution as nondeductable, just as it should have.
I had not mentioned the name of the software before. I will now, it is ATX, a great program. I am from the old school; ATX is for the the preparers like my self that like to see the tax forms immediately after the input of the dollar amount. I sent a link of my complaint to ATX and they immediatly got back to me asking that I E Mail the return for their review. ATX, please accept my apology. Thanks to The Tax book and the members for this great Web Site and Chat Fourm, for your help. Bob

[FEDUKE404]

Software smaltzware!

Try to go back to those olden days without software....

If there is a Form 1099-R, the code in Box 7 determines certain tax issues, especially if a 10% penalty might apply.

The IRA distribution should stand on its own.

As for putting any NEW funds into a traditional IRA, and deducting them, the income of the client and the presence/absence of the appropriate entry in Box 13 of the W2 is relevant. If that box is checked, there is a pretty good chance (income issues) a deductible IRA contribution is prohibited for 2010. There is no "timing" issue IIRC - any W2 for 2010 income with that box checked governs all potential IRA limitations for 2010.

Once someone creates a non-deductible traditional IRA contribution, either willingly or unwillingly, a Form 8606 issue comes into play. That form will follow him each year...loosely translated as "forever." The Form 8606 essentially lowers the amount of the taxable amount of any traditional IRA distribution from 100% to.....something less than 100%. Yes, to appease the Form 8606 gods you will have to get year-end values of all IRAs, do some annual number-crunching for all future (current?) IRA distributions, etc. I generally threaten something approaching bodily harm, or at least suggest a good psychiatrist, to any of my clients who ever want to make a non-deductible IRA contribution. Think Roth, think 401(k), think of....just about anything else.

If your "software" is giving you problems, I assume it is having some issues with an IRA distribution as well as a (non-deductible in the first place?) IRA contribution occurring in the same year. You will need to work that out on your own. I'm about ready to "retire" for a while.

FE

[SFBOB]

Thanks Feduke

Everything is fine now. The Taxpayer wanted to cancel the balance due on the Federal return by making a $3000 TRA contribution. He is a happy camper and yes I told him after the fact[My stupidity] that the IRA contribution is nondeductable.He does not understand and I will track the 8606 with year end values each year. His main problem is that I will be 81 July 5th and the next guy may lose track of this tax free withdrawal allocation in future years. One day the flat tax may put us out of business. Dont count on it. Have a good one . Thanks to all. Bob

[Gene V]

Have a Happy 81st Birthday in July, I will be 89 Jan,25, 2032

[JohnH]

Exactly what happens to the calendar after the 60th birthday?
It seem like we start having 2 or 3 birthdays a year...

[SFBOB]

Thanks For The Smile Guys

Gene v and JohnH. Thanks Guys. Gene made me get out to pencil and figure out that he will be 69 January 2012. Did I get it right Gene? John, so far good luck for me. My mother made it to 102 years of age before she went to meet her maker. Have A Good One. Thanks Bob

[SFBOB]

Client on installment plan. Will he get his EIC?

Client fell on hard times like many these days. Currently owes $17,000 on last years IRA withdrawal do to the 10% penalty plus income tax. Will he get the $1030.00 EIC money or will the IRS apply it to the balance due from 2009. He is current on the installment plan and has the payments taken out of his checking account. Thanks Bob