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Tax bill, backdoor - Help!

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  • Tax bill, backdoor - Help!

    So I've done my taxes in TurboTax the last 9 years without any trouble. This year, my state has an amazing credit of $10k for new mental health docs who have moved into the state, and TurboTax would not let me input it, so I paid a tax preparer for the first time ever. It was from a firm recommended to me by my financial advisor who I found through this website.

    So, I learned that my federal tax bill is $16k. This was mostly from selling my home after only 16 months and the capital gains from that. However, when I saw the return today I see that there is a $12k IRA distribution listed as taxable income, which has never been there before. This appears to be from the backdoor Roth. When I asked the preparer about this, they indicated there isn't the right form to show a ' cost basis' to prove this is a 'real back door Roth' and therefore they had to report it as taxable.

    I would love advice; I provided them the 1099R and 5498 for each IRA, and the conversion was all done by my financial advisor. I need language to give the preparer to help them know how to do this correctly. Or other advice on how I can fix this. Thank you!

  • #2
    8606?

    Comment


    • #3
      Ask to see Form 8606. Since the form asks for the cost basis from the previous year, tax preparer should have asked for last year’s return to obtain the info. Tax on the Roth conversion is also determined on the 8606. They either didn’t fill it out or did it incorrectly.

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      • #4
        https://forum.whitecoatinvestor.com/...-ira-home-base

        Send the CPA (or preparer) this link.
        Let them know that they didn’t “have to” report any post tax contributions. You could actually send in 8606 separately!

        Comment


        • #5
          Two backdoor transactions, right? $6k each for you and your spouse, so there will be two Forms 8606. Remember, the backdoor Roth is a taxable transaction. It is just there is no tax due because the basis is the full $6k each. Your preparer missed a step in the data entry where the basis was to be entered.

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          • #6
            This is troublesome. You might want to make sure the CPA and the FA d/n have any kind of referral or financial relationship. Honestly, I think a lot of you guys are blind to the fact that this goes on far more than you would realize. An FA can refer to themselves as “fee only” and still have this relationship if they scratch each other’s backs.

            Not saying that is the case in any way here, just a tip.
            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              Thanks for all the advice. I was able to use this information to get this corrected, and amend the return!

              Comment


              • #8
                Originally posted by gvs.psych View Post
                Thanks for all the advice. I was able to use this information to get this corrected, and amend the return!
                I hope this is a one time deal. If you are going back to TurboTax, the prior years balances etc. Won’t be on TT’s system without some work. Be careful with the TT system data pulled forward.

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                • #9
                  Originally posted by Tim View Post

                  I hope this is a one time deal. If you are going back to TurboTax, the prior years balances etc. Won’t be on TT’s system without some work. Be careful with the TT system data pulled forward.
                  The mental health provider tax credit is something I can get for 10 years! So no more turbotax for me.

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