Like Jerome99, I still don't get how to fix this issue in Turbotax. My wife and I both bought Traditional IRAs and converted then to Roth IRAs by back dooring. TurboTax still has me paying taxes on those contributions. Not sure where I'm going wrong.
In the Income section, enter your 1099R exactly as it appears, especially box 7.
In the Deductions section (even though we're talking about non-deductible contributions), go into "Traditional and Roth IRA Contributions"
Select "Traditional IRA".
Answer "no" to "Repayment".
For "Enter the total amount you put into a traditional IRA for 2012, even if you later transferred some or all of it to a Roth IRA", do what it just told you to do.
"Did You Switch Your Contribution? "Switched" or "recharacterized" does not mean converted or rolled over." Answer NO! Apparently a common point of confusion, as "switch" isn't really a typical term, but it's specifically asking about recharacterization, not conversion.
Answer "no" to "Excess Contributions".
"Any Nondeductible Contributions to Your IRA?" This is asking about 2011 or prior. If you started 2012 with no money and
no basis in any traditional IRAs, answer "no" here. Note that it's possible to have basis but no money -- I started 2012 with no money in traditional IRAs but an $11 basis due to a market loss during my 2011 backdoor Roth. If you have to answer "yes", just follow the prompts.
"Tell Us the Value of All Your Traditional IRA Accounts" -- enter $0 if you had no money in any traditional IRAs at the END of 2012.
You should see this: "Income Too High To Deduct an IRA Contribution - Your modified adjusted gross income (MAGI) is $<NOPE>, which puts you over the limit for IRA deductions. To deduct a contribution, you can't have a MAGI of over $68,000 while being covered by a retirement plan at work."
You should see this: "Your IRA Deduction Summary: Based on what you've entered you don't qualify for an IRA deduction. Your IRA Deduction $0" However, if you did everything correctly, it should no longer be marking your 1099-R income as taxable. If you're not above the deduction limit, then I'm not sure why you'd be doing a backdoor Roth, but the numbers should come out the same -- TurboTax may force you to take the deduction, but then your conversion would become taxable and everything would balance out.
Note: the different tax software services display things differently. TurboTax will always show the entire 1099R amount in the income summary, even if none of it is taxable. TaxAct will only show the taxable amount. This does not affect the calculations -- it's just a difference in how they display things. If you've already done your return in TurboTax, it shouldn't take more than 1-2 hours to re-do it in TaxAct to confirm TurboTax's calculations are correct. And once you've done that, you'd probably be better off using TaxAct to file, since it's a lot cheaper.