Issue with reporting backdoor roth using the Credit Karma tax website

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jimmyrules712
Posts: 623
Joined: Thu Jan 06, 2011 11:36 pm

Issue with reporting backdoor roth using the Credit Karma tax website

Post by jimmyrules712 »

I have always used Turbo Tax in the past but saw an ad for the completely free Credit Karma tax service and thought I'd give it a go. This year for the first time I had to do a backdoor Roth. Contributions were made and converted this week for the 2020 tax year.

My understanding from the instructions in IRS form 8606 is I am required to report the non-deductible contributions via 8606 and then next year when I file 2021 taxes I will report the conversion.

However after answering the Credit Karma questions for form 8606 I discovered that the form is not being generated or included in the final return. I did some digging and found this article on the Credit Karma site which says "Credit Karma Tax won't generate a Form 8606 if there were no taxable distributions for the year".

Am I misunderstanding the IRS' expectations for when 8606 should be filed or is Credit Karma wrong?
tashnewbie
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Joined: Thu Apr 23, 2020 12:44 pm

Re: Issue with reporting backdoor roth using the Credit Karma tax website

Post by tashnewbie »

I think your understanding of when Form 8606 is needed is correct, and CKT's is wrong.

My understanding is that you need to file Form 8606 in any year that you make a non-deductible TIRA contribution (it tracks your basis) and in any year in which you make a Roth conversion.

You should file a 2020 Form 8606 because you made a n-d TIRA contribution for 2020.

I was also planning to use CKT for my 2020 taxes (used it in 2019 with no issues, but didn't do a backdoor Roth for 2019), but I've run into an issue that CKT can't deal with - I recharacterized part of a direct Roth IRA contribution, and therefore, I need to attach an explanatory statement to Form 8606 regarding the recharacterization. CKT just confirmed today that I can't attach statements to the returns they generate, and the software doesn't have a prompt with a text box that can be used to include the statement.

It sounds like you reviewed the CKT summary document. Your Form 8606 should be in there (mine is, but I did contribution and conversion in 2020).

My recommendation would be to go back to using TurboTax.
Topic Author
jimmyrules712
Posts: 623
Joined: Thu Jan 06, 2011 11:36 pm

Re: Issue with reporting backdoor roth using the Credit Karma tax website

Post by jimmyrules712 »

tashnewbie wrote: Thu Apr 08, 2021 9:54 am I think your understanding of when Form 8606 is needed is correct, and CKT's is wrong.

My understanding is that you need to file Form 8606 in any year that you make a non-deductible TIRA contribution (it tracks your basis) and in any year in which you make a Roth conversion.

You should file a 2020 Form 8606 because you made a n-d TIRA contribution for 2020.

I was also planning to use CKT for my 2020 taxes (used it in 2019 with no issues, but didn't do a backdoor Roth for 2019), but I've run into an issue that CKT can't deal with - I recharacterized part of a direct Roth IRA contribution, and therefore, I need to attach an explanatory statement to Form 8606 regarding the recharacterization. CKT just confirmed today that I can't attach statements to the returns they generate, and the software doesn't have a prompt with a text box that can be used to include the statement.

It sounds like you reviewed the CKT summary document. Your Form 8606 should be in there (mine is, but I did contribution and conversion in 2020).

My recommendation would be to go back to using TurboTax.
Upon doing some further research it appears that you can send in form 8606 separate from your return and as long as there is no refund or taxes owed you don't have to amend your return so I'm leaning towards just doing that rather than spending money on Turbotax just to ensure it's included. Or maybe I'll just take the credit karma forms it generated and use them to fill out the free fillable forms and file it manually.
tashnewbie
Posts: 1504
Joined: Thu Apr 23, 2020 12:44 pm

Re: Issue with reporting backdoor roth using the Credit Karma tax website

Post by tashnewbie »

jimmyrules712 wrote: Thu Apr 08, 2021 10:13 am
Upon doing some further research it appears that you can send in form 8606 separate from your return and as long as there is no refund or taxes owed you don't have to amend your return so I'm leaning towards just doing that rather than spending money on Turbotax just to ensure it's included. Or maybe I'll just take the credit karma forms it generated and use them to fill out the free fillable forms and file it manually.
Good point. I forgot that you can file Form 8606 as a standalone document, without needing to amend the return, as long as it doesn't affect tax liability. I guess I could file the explanatory statement separately.

I was planning to just fill out the forms and file manually. Good luck with whatever you do.

ETA: I feel like I should more strongly express gratitude for your reminder of this! You may have saved me the money and effort of buying tax software. Thanks!!
jatwell
Posts: 58
Joined: Tue Oct 09, 2012 9:32 pm

Re: Issue with reporting backdoor roth using the Credit Karma tax website

Post by jatwell »

Free fillable forms lets you e-file.

I had this 8606 issue plus CKT will not allow refund via savings bonds.

I took the CKT forms generated and used FFF to enter and update and was able to efile at zero cost. Refund and bonds arrived in ~12 days (filed beginning of March). It was a bit of work though, basically digitally filling out all tax forms directly. I kind of liked it though, made all those questions asked make a lot more sense.

No easy button for state efile though, I couldn't figure out how to efile state on CKT if you don't efile federal. Ended up mailing in the CKT generated state forms.
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jeffyscott
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Location: Wisconsin

Re: Issue with reporting backdoor roth using the Credit Karma tax website

Post by jeffyscott »

jimmyrules712 wrote: Wed Apr 07, 2021 10:13 pmI did some digging and found this article on the Credit Karma site which says "Credit Karma Tax won't generate a Form 8606 if there were no taxable distributions for the year".
That article is confusing, it that it says that but also says "Credit Karma Tax will generate Form 8606 and include it in your federal return, if necessary..."

The instructions and the form, itself says:
Who Must File
File Form 8606 if any of the following apply.
You made nondeductible contributions to a traditional IRA for 2020


So it seems obvious that it would be "necessary" in all cases when there are such contributions.
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