Funding a IRA

[JKaz]

Can you claim and IRS deduction before it's deposited?.

Wondering if one could claim an IRA deduction by having the refund directed into the IRA account using the new form 8888.

[Snaggletooth]

Yes

The deposit requirements for deducting an IRA extend until April 15 of the following year.

So if you're filling out a return in February and the client wants to deduct an IRA you can go ahead and deduct it, and he has until April 15th to put the money in the financial institution.

As to Form 8888? I would think this would be allowable to the extent it is logistically feasible. Remember the financial institution has to verify the deposit under the SS # of the individual, not the FEIN# of the institution, as well as the timeliness of the deposit. For this year, sounds like a recipe for miscommunication, thus I would avoid it for this filing season. Also, if the IRA has to be established as a new IRA, this would have to be done prior to the deposit.

I would encourage the client to avoid the avenue of 8888 for this year, until we have more confidence that the financial institutions and IRS bursery are in synch. Then maybe use it in future years if it's working smoothly.

NEVER assume that a financial institution will give personal service for mass electronic transactions that they haven't been confronted with before.

[JKaz]

Form 8888

Thanks for your reply.

I can see where there would be a problem, namely, a joint check going into a single account IRA....won't work. I can see seperated joint filers trying to direct one half the refund into their own bank account.

You have a good thought,,,,give it a year and see how things work out.

[Joe Btfsplk]

IRA deduction

Can you claim and IRS deduction before it's deposited?.

Wondering if one could claim an IRA deduction by having the refund directed into the IRA account using the new form 8888.

I think what you are asking requires identifying the IRA year you want to claim the deduction for. Any contribution made after Apr 15 up to the end of the year can be claimed as a deduction for the tax year it is made; i.e. anything up to Dec 31, 2006 can be claimed on your 2006 tax return due Apr 15 2007.

If you make a contribution between Jan 1 2007 and Apr 15 you can choose whether to claim the deduction on your 2006 or your 2007 return--and must be careful to specify which.

[Bill Tubbs]

Yes

Can you claim and IRS deduction before it's deposited?.

Wondering if one could claim an IRA deduction by having the refund directed into the IRA account using the new form 8888.

Simple answer is Yes. Actually I have had clients that tell me that they will contribute $xxx into their IRA prior to April 15 for the prior calendar year, and I will go ahead and include it when I file the return (even though it hasn't happened yet). I just caution them that if they don't follow through and actually make the deposit that they'll need their return amended.

As far as those who will say this is not quite proper -- take the case where someone on March 1st made an IRA deposit for the prior year -- taxpayer could get his return done then go back to the back and say "oops -- it should've been for the current tax year, not the prior one". No different.

Bill

[OldJack]

The custodian financial institution reports the contribution to the IRS on form 5498 as to the year and amount applied. So if you take a current deduction but have the contribution applied to the next year it will cause the IRS to disallow the deduction in the current year with penalties.