form 8606 blues

[seawolf21]

+1

I’ve posted many times before. CPA is not necessarily a tax preparer. These are two different disciplines. It’s like asking a cardiologist to work on your teeth because both a cardiologist and a dentist can be addressed as Doctor.

This is a meaningless analogy.

I dont think going to the CPA for personal taxes sounds as extreme as going to the cardiologist for getting dental work.

No sane person goes to a cardiologist to get their teeth fixed and if someone did go to a cardiologist to get their teeth fixed- I would hope the cardio would tell them- i dont fix teeth - go see a dentist.

Similarly- if CPAs dont file personal tax returns - they should say so and direct people to the right place, instead of taking 1 grand and doing shoddy work- which is exactly what happened.

That being said- reading stuff on bogleheads and turbotax forums after being serially screwed by CPAs has helped me immensely and I plan on filing taxes myself using turbotax in future.

No sane person would seek one medical profession to perform work on another because it is common sense. But this common sense/knowledge doesn't exist when it comes to CPA and filing taxes. Focus of a CPA is applying accounting concepts and having a general knowledge of federal tax regulations; not filing out tax forms. People generally just assume someone who is a CPA must know how to file taxes. This assumption is simply not true.

This incorrect assumption is why you'll find BH threads every now and then with a recurring theme involving topic owner asking the BH community if a CPA did their taxes correctly.

CPA do file tax returns; they just may not necessarily be doing it 100% accurately per IRS requirement. They are not intentionally filing it incorrectly. They just don't know what they don't know because only a general knowledge of federal taxation is needed for the CPA exam.

[Ani]

No sane person would seek one medical profession to perform work on another because it is common sense. But this common sense/knowledge doesn't exist when it comes to CPA and filing taxes. Focus of a CPA is applying accounting concepts and having a general knowledge of federal tax regulations; not filing out tax forms. People generally just assume someone who is a CPA must know how to file taxes. This assumption is simply not true.

This incorrect assumption is why you'll find BH threads every now and then with a recurring theme involving topic owner asking the BH community if a CPA did their taxes correctly.

CPA do file tax returns; they just may not necessarily be doing it 100% accurately per IRS requirement. They are not intentionally filing it incorrectly. They just don't know what they don't know because only a general knowledge of federal taxation is needed for the CPA exam.
[/quote]



It is interesting to learn that only a general knowledge of taxation is needed for the CPA Exam.

Then who should a busy professional who doesn't have time/motivation /patience to learn about filing personal taxes go to? an enrolled agent? a tax attorney?

I started filing taxes in 2010 and it took me 10 years to finally learn about 8606 ( thanks to WCI and bogleheads forum,), as I was trusting the 'expert CPAs' to take care of my taxes.

Ignorance is clearly not bliss as far as taxation goes.

[tibbitts]

+1

I’ve posted many times before. CPA is not necessarily a tax preparer. These are two different disciplines. It’s like asking a cardiologist to work on your teeth because both a cardiologist and a dentist can be addressed as Doctor.

This is a meaningless analogy.

I dont think going to the CPA for personal taxes sounds as extreme as going to the cardiologist for getting dental work.

No sane person goes to a cardiologist to get their teeth fixed and if someone did go to a cardiologist to get their teeth fixed- I would hope the cardio would tell them- i dont fix teeth - go see a dentist.

Similarly- if CPAs dont file personal tax returns - they should say so and direct people to the right place, instead of taking 1 grand and doing shoddy work- which is exactly what happened.

That being said- reading stuff on bogleheads and turbotax forums after being serially screwed by CPAs has helped me immensely and I plan on filing taxes myself using turbotax in future.

No sane person would seek one medical profession to perform work on another because it is common sense. But this common sense/knowledge doesn't exist when it comes to CPA and filing taxes. Focus of a CPA is applying accounting concepts and having a general knowledge of federal tax regulations; not filing out tax forms. People generally just assume someone who is a CPA must know how to file taxes. This assumption is simply not true.

This incorrect assumption is why you'll find BH threads every now and then with a recurring theme involving topic owner asking the BH community if a CPA did their taxes correctly.

CPA do file tax returns; they just may not necessarily be doing it 100% accurately per IRS requirement. They are not intentionally filing it incorrectly. They just don't know what they don't know because only a general knowledge of federal taxation is needed for the CPA exam.

I don't understand your reply. A medical professional who isn't comfortable doing a procedure would hopefully refer a patient to someone who is comfortable with it, even if asked to do the procedure themselves. I would expect a CPA to do the same.

[retiredjg]

Correct me if I am wrong please. I think you only need to file 8606 in the year(s) that you made non-deductible contributions to an IRA which results in co-mingled money.

Whether it results in co-mingled money is irrelevant. Making a non-deductible contribution requires the form, co-mingling or not.

No, you do not file one every year after that. Only in years the form is needed for one of the purposes the form is used for.

[NYCPete]

No sane person would seek one medical profession to perform work on another because it is common sense. But this common sense/knowledge doesn't exist when it comes to CPA and filing taxes. Focus of a CPA is applying accounting concepts and having a general knowledge of federal tax regulations; not filing out tax forms. People generally just assume someone who is a CPA must know how to file taxes. This assumption is simply not true.

This incorrect assumption is why you'll find BH threads every now and then with a recurring theme involving topic owner asking the BH community if a CPA did their taxes correctly.

CPA do file tax returns; they just may not necessarily be doing it 100% accurately per IRS requirement. They are not intentionally filing it incorrectly. They just don't know what they don't know because only a general knowledge of federal taxation is needed for the CPA exam.

It is interesting to learn that only a general knowledge of taxation is needed for the CPA Exam.

Then who should a busy professional who doesn't have time/motivation /patience to learn about filing personal taxes go to? an enrolled agent? a tax attorney?

I started filing taxes in 2010 and it took me 10 years to finally learn about 8606 ( thanks to WCI and bogleheads forum,), as I was trusting the 'expert CPAs' to take care of my taxes.

Ignorance is clearly not bliss as far as taxation goes.

It's true not every CPA is automatically good at doing taxes. I require that the person who prepares my taxes is a CPA, because I want the person doing my taxes to have a fiduciary standard. I also take the position that someone with the expertise and accounting acumen to become a CPA should find little challenge in properly preparing a tax return. But, as this post and threads illustrate, taxes is more than properly and accurately filing a 1040.

When I first looked for a tax preparer to do it for me, CPA was the minimum, and then I looked closely at how they interview a tax payer for the circumstances of their taxes, perhaps looking to see if they emphasized doing taxes for people with investments. A really good tax preparer (CPA or not) will make a person go through a thorough process of divulging all sorts of things the tax payer might not have thought of disclosing. A CPA doesn't know what they don't know. They can't put it on your tax return if they don't know about it. The good ones (IMO) force a tax payer to do a little homework on their own to ensure the preparer hasn't missed anything. The great ones make suggestions after that process about how you might do things better in the future.

Unlike the Bogleheads approach to investing, I'm of the mind that once you've learned enough to do your taxes yourself, you should pay someone else to do it.* I've saved literally days worth of hours over the years from checking someone else's work instead of doing it myself.

Best,
Peter

*Assuming they're good at it!

[MandyT]

Some of the data for 8606 is supposed to come from Form 5498. 5498 is always issued late. 2018 was dated 5/20/2019, and I haven't seen the one for 2019.

Exactly what data is supposed to come from Form 5498? I have included a Form 8606 with my income tax returns for many years, and I have never needed any data from Form 5498.

The main purpose of the 5498 is to document how funds got into your Roth IRA, which can be useful when it's time to withdraw and also in certain other situations.

For example: the last couple of years, I've done some traditional (deductible) IRA to Roth IRA conversions. In February, I get a 1099-R to document the "distribution" from the traditional IRA. In June*, I get a 5498 to document the funds going into the Roth IRA. The conversion is fully taxable but, without the 5498, the IRS would think I was taking an early distribution subject to a 10% penalty.

*One of my IRA providers told me that the mailing deadline for 5498's has been extended from May 31 to August 31 because of the change in the tax deadline, so I should receive my 5498 in September this year.

[neurosphere]

It's true not every CPA is automatically good at doing taxes.

I'll pile on and give this headscratcher which I just learned about yesterday.

Taxpayer made an IRA contribution with subsequent roth conversion. Told the CPA he did a "backdoor Roth" and provided 1099s.

CPA said you are over the limit for making a Roth or a Traditional IRA and that they were only eligible to contribute to a "non-deductible" IRA as the first step in the backdoor Roth process. He made husband and wife each undo the contribution/conversion prior to filing taxes, and they came to me asking "now how do we contribute to a non-deductible IRA"?

[retiredjg]

[Silverado]

I do not understand how this can happen so often when tax software is involved. Any CPA or tax preparer should be entering a traditional IRA contribution when doing the return. It needs reported somewhere and may lower taxes if deductible. Once entered the software should complete the Form 8606 with no input from the preparer. So, how does this get missed by multiple people for multiple years?

This. Follow the interview in TT and be accurate in your answers and it will generate the 8606. I suspect it gets missed because people think they know better so they skip around and since they know their IRA contribution isn't deductible, they just skip the whole IRA contribution section.

Nah, I know I don’t know any better, and followed TT through step by step in around 2012 or so, and clearly said we contributed to an IRA and it told me it was not deductible, but the 8606 was not done correctly. I discovered it and made the correction a couple years later. Surely I could have answered something wrong, but I am fairly cautious.

I made the mistake of non deductible for seven years. It’s all in CDs, so at least the gains aren’t super large. Some year I’ll do something....not sure what, but likely just cash it all out or something and chalk it up as who knows what. There’s a chance we will need the room for bonds, so then I can smirk and say it was my plan all along.

[FactualFran]

Some of the data for 8606 is supposed to come from Form 5498. 5498 is always issued late. 2018 was dated 5/20/2019, and I haven't seen the one for 2019.

Exactly what data is supposed to come from Form 5498? I have included a Form 8606 with my income tax returns for many years, and I have never needed any data from Form 5498.

The main purpose of the 5498 is to document how funds got into your Roth IRA, which can be useful when it's time to withdraw and also in certain other situations.

For example: the last couple of years, I've done some traditional (deductible) IRA to Roth IRA conversions. In February, I get a 1099-R to document the "distribution" from the traditional IRA. In June*, I get a 5498 to document the funds going into the Roth IRA. The conversion is fully taxable but, without the 5498, the IRS would think I was taking an early distribution subject to a 10% penalty.

My question, phrased slightly differently, is what data to complete Form 8606 must come from Form 5498?

As you pointed out, Form 1099-R has the distribution amount. The fact that the that distribution was used for a Roth conversion is an entry on the account statement of the Roth IRA. For example, with a Roth IRA conversion that I did at Vanguard, the account statement for the Roth IRA has a transaction of type "Employee conversion".

Another value reported on Form 5498 is the end of year value of IRA accounts. That value is also on the end of year account statement that are available near the start of the following year.

Form 8606 can be correctly completed prior to receiving the Form 5498 for the year.

[capran]

Hello All.

I was educating myself regarding IRA contributions- and learnt about the form 8606- needed for reporting non -deductible IRA contributions to IRS.
me/wife had had 401ks all these years and exceed the income limit for deductible IRA contribution.


I went back through my tax returns all the way back till 2015 and realized that the form 8606 was never filed all these years.

Over these years- I had 4 CPA's and not a single one of them filed this form. Before filing tax returns- I gave them all the forms they requested from me and also told them about my 401k and IRA contributions.

Without these forms - the IRS wont know my basis in IRA and I will be double taxed on this amount when I take the money out in retirement.

Has this been the experience of other people on this forum as well with the 8606 form.

Is filing 8606 just too much work for CPAs? or are my CPAs here in NJ just lazy/careless. Some of them didn't come cheap either- charged 1000$ for a simple tax return.

Thank you.

AK

Whenever I've posted on the forum about the curse of the 8606, Bogleheads tell me I'm crazy, and that it's completely trivial. And then we get posts like this one all the time, probably more than about any other IRS form. Well, it is a curse, and unless you have very special circumstances (employer plans accepting rollovers, etc.) you'll regret having contributed to a deductible IRA for the rest of your life. And as a bonus, the curse will live on even after you're gone.

I'm confused by "you'll regret having contributed to a deductible IRA". Isn't the title of the 8606 NON DEDUCTIBLE IRA'S? I thought if you made deductible contributions, the IRA as well as any earnings would have a zero basis and you would pay tax on the full amount of the IRA withdrawal? I thought having made deductible contributions made it simpler.

[Alan S.]

Yep, you are right.
The poster probably meant to type "non deductible IRA".

[capran]

Whew! Thought I was a goner, as every bit of our IRA's were deductible and we have been doing the 8606 as we convert our IRA to roth every year. We just pay income tax on what ever we withdraw. Someday we might dip into roths but probably not. Hope there's no complicated form to go with that one!

[strongboy2005]

I’ll pile on and give this headscratcher which I just learned about yesterday.

Taxpayer made an IRA contribution with subsequent roth conversion. Told the CPA he did a "backdoor Roth" and provided 1099s.

CPA said you are over the limit for making a Roth or a Traditional IRA and that they were only eligible to contribute to a "non-deductible" IRA as the first step in the backdoor Roth process. He made husband and wife each undo the contribution/conversion prior to filing taxes, and they came to me asking "now how do we contribute to a non-deductible IRA"?

Could you explain this? Are there different accounts for non-deductible and deductible IRAs?

[neurosphere]

I’ll pile on and give this headscratcher which I just learned about yesterday.

Taxpayer made an IRA contribution with subsequent roth conversion. Told the CPA he did a "backdoor Roth" and provided 1099s.

CPA said you are over the limit for making a Roth or a Traditional IRA and that they were only eligible to contribute to a "non-deductible" IRA as the first step in the backdoor Roth process. He made husband and wife each undo the contribution/conversion prior to filing taxes, and they came to me asking "now how do we contribute to a non-deductible IRA"?

Could you explain this? Are there different accounts for non-deductible and deductible IRAs?

No. That's the point. There are only traditional IRAs and Roth IRAs (if we exclude employer-based IRAs such as SEP* and SIMPLE IRAs). And when reporting a Traditional IRA contribution on your taxes, you can choose to report that contribution as a non-deductible contribution or deductible contribution. Alternately, there are situations where one is not eligible for deductible contributions and the only contribution type allowable is a non-deductible contribution. In this case the CPA seemed to be under the false impression that there a special kind/type of IRA called a "non-deductible IRA". There is no such thing. The contribution to the traditional IRA was valid, and merely needed to be reported as a non-deductible contribution on form 8606. There was no need to undo to the contribution.

*I recently learned (ok, 5-6 years ago) that one can make traditional IRA contributions to a SEP IRA account which are independent of any employment. For example, an empty SEP IRA account can receive IRA contributions similarly to a "regular" traditional IRA, and can be subsequently converted to a Roth to complete a "backdoor" Roth maneuver if desired.