Looking for some help with my 2022 taxes -- 1099 DIV, Backdoor Roth, TLH, FTC

[Aguilar]

I took a first pass at doing my fed taxes using FreeTaxUSA and ran into some roadblocks. Would really appreciate some guidance.

1. 1099-DIV

When filing 1099-DIV, FreeTaxUSA asks "Is this a mutual fund that has U.S. Government interest income?" do I check yes? two of the funds in question are munis (NY and natl limited term tax exempt) but the rest aren't.

I listed my amount ($1249) in tax-exempt dividends in box 12. I also specified the amount of the $1249 that is from bonds issued by NY, where I live.

I'm then asked "You've told us that this mutual fund has U.S. Government interest income. This income is not taxed by states. Enter the amount of your $21,486 of ordinary dividends that are from U.S. Government interest:" Do I put the amount of the natl limited term tax exempt here ($488) or all $1249, which again, represents both munis?

2. Backdoor Roth Edit: Solved

In 2022 I executed a backdoor Roth for the first time. I first transferred all my TIRA to my 401k. Then I contributed $6k after tax dollars to TIRA. When I converted it to my Roth (into VTIAX), the $6k cash was worth $6k and pennies. The same day, I also put $40 that was in my Roth as cash into VTIAX.

Where do I enter the cost basis for the Roth conversion? The software asks me if I made any IRA contributions in 2022 and to specify the amount per TIRA and/or Roth. I entered $6k for TIRA only and my fed taxes owed was reduced by $1920. How do I validate that this the correct outcome?

The software also asks "'Did you withdraw any traditional IRA contributions by the tax filing due date?' I put $6k here but I'm not 100% sure if a conversion is treated as a withdrawal by the IRS. Anyone know? Seems logical but then again, I'm a layman.

3. Health insurance proof Edit: Solved
Where do I enter my 1095-C showing I had health insurance? Or is that not required anymore?

4. 1099-B for TLH Edit: Solved
I TLH'd about 15-20 lots each of my two international mutual funds in 2022. When i entered the information from my 1099-B for long term losses, my fed tax liability didn't change—why? I didn't have any capital gains last year. On schedule D, box 16 is -9,023 (the total amount of losses for both funds) but box 21 is -1500. Shouldn't it show -3k? This way, I'd have $6,023 to carryover to 2023. The income tax summary in the software shows -1500 for capital gains.

5. Standard deduction Edit: Solved
I noticed when I chose the standard deduction, my tax liability didn't change in the software. Is this because the software shows your refund/liability as you complete the forms with a default selection that you are taking the standard deduction?

6. Foreign tax credit Edit: Solved
I held two intl funds in 2022. In the 2020 FTC doc from Vanguard, the data provided is a bit different from prior years. In the past, i added up my foreign tax paid across a mutual fund, then multiplied it by the second column in the Vanguard sheet, which was Foreign income = total foreign tax X. This column doesn't appear in the 2022 FTC doc: https://www.vanguard.com/pdf/FTC_2023.pdf

Which number do I use from this sheet? And what's the formula?

I used the number from the middle column and multiplied it by my foreign tax paid for that fund. My final calc for foreign source income between the two funds was far bigger than in previous years, which makes me think I am doing something wrong. The end result in the federal summary in the software shows $511 FTC, which is correct, but I don't think I got there correctly.

Here's my math:

Foreign source income: 
(VTIAX) 69.21 foreign tax paid x 73.6311 = 5096.008
(FTSE) 442.05 foreign tax paid x 76.2422 = 33702.86
Total: 5096.008 + 33702.86 = $38798.8729 = foreign source income

Thanks in advance for any advice.

[StrangePenguin]

I took a first pass at doing my fed taxes using FreeTaxUSA and ran into some roadblocks. Would really appreciate some guidance.

1. 1099-DIV

When filing 1099-DIV, FreeTaxUSA asks "Is this a mutual fund that has U.S. Government interest income?" do I check yes? two of the funds in question are munis (NY and natl limited term tax exempt) but the rest aren't.

I listed my amount ($1249) in tax-exempt dividends in box 12. I also specified the amount of the $1249 that is from bonds issued by NY, where I live.

I'm then asked "You've told us that this mutual fund has U.S. Government interest income. This income is not taxed by states. Enter the amount of your $21,486 of ordinary dividends that are from U.S. Government interest:" Do I put the amount of the natl limited term tax exempt here ($488) or all $1249, which again, represents both munis?

US Gov't interest income is income from debt issued by the US government, not a state government. For example, US Treasury Notes or a money market fund that invests in US Treasuries (such as VUSXX at Vanguard). This type of income is exempt from state tax. However different states have different rules for funds that invest in a mix of US Treasuries and other bonds (such as Total Bond Market funds).

Muni funds that you are mentioning above are note US government income. They are exempt from federal tax but (sometimes) not state tax.

So whether to check "Yes" on the US Gov't income question depends on whether you are talking about a fund that owns US Treasury bonds. For munis you would click "no".

[HomeStretch]

… 2. Backdoor Roth

In 2022 I executed a backdoor Roth for the first time. … I contributed $6k … to TIRA. When I converted it to my Roth…, the $6k cash was worth $6k and pennies. …

Where do I enter the cost basis for the Roth conversion? The software asks me if I made any IRA contributions in 2022 and to specify the amount per TIRA and/or Roth. I entered $6k for TIRA only and my fed taxes owed was reduced by $1920. How do I validate that this the correct outcome?

The software also asks "'Did you withdraw any traditional IRA contributions by the tax filing due date?' I put $6k here but I'm not 100% sure if a conversion is treated as a withdrawal by the IRS. …

I do not use FreeTaxUSA.

If entering the $6k TIRA contribution causes your federal taxes owed to decrease, then the tax prep software is saying your TIRA contribution qualifies as deductible rather than being nondeductible (as per step 1 of the backdoor Roth). For your contribution to be deductible, you must not be covered by a workplace plan or your income must be below the 2022 IRS limit.

If your TIRA contribution is deductible, it means you didn’t do a backdoor Roth (i.e., a non-deductible TIRA contribution/non-taxable Roth conversion) and your TIRA basis is $0. Rather you made a deductible TIRA contribution and then did a taxable Roth conversion. Not a big deal as both ways get you to the same place tax-$-wise.

You should have received a 2022 Form 1099-R from your brokerage for the 2022 TIRA distribution of $6000 + pennies. You should enter the full amount of the distribution and tell the software that you converted the distribution to a Roth IRA. At this point, the federal taxes owed should increase as the conversion is taxable.

Your Form 1040 filing should include Form 8606. If your TIRA contribution is deductible, only Part II (for the Roth conversion) will be filled out.

You should receive by May 15, 2023 two 2022 Form 5498s showing the $6k contributed to your TIRA and the $6k + pennies that went into your Roth IRA. They are informational only (not entered into your 2022 tax return). Keep these for your files until your TIRA and Roth IRA are fully emptied in the future.

[tashnewbie]

2. Backdoor Roth


In 2022 I executed a backdoor Roth for the first time. I first transferred all my TIRA to my 401k. Then I contributed $6k after tax dollars to TIRA. When I converted it to my Roth (into VTIAX), the $6k cash was worth $6k and pennies. The same day, I also put $40 that was in my Roth as cash into VTIAX.

Where do I enter the cost basis for the Roth conversion? The software asks me if I made any IRA contributions in 2022 and to specify the amount per TIRA and/or Roth. I entered $6k for TIRA only and my fed taxes owed was reduced by $1920. How do I validate that this the correct outcome?

The software also asks "'Did you withdraw any traditional IRA contributions by the tax filing due date?' I put $6k here but I'm not 100% sure if a conversion is treated as a withdrawal by the IRS. Anyone know? Seems logical but then again, I'm a layman.

You should check to confirm that Form 8606 was generated. I assume you intended to make a non-deductible Trad. IRA contribution, followed by a Roth conversion. As user directly above said, it sounds like the tax software is operating as if you made a deductible Trad. IRA contribution, which is why your tax liability decreased. I suspect you are covered by a workplace plan and your MAGI is too high to deduct a Trad. IRA contribution, therefore, you intended to do the standard backdoor Roth process.

For the second question you listed, I think your answer should be "no." But you should complete Form 8606 by hand to validate what the tax software should generate. If tax software's generated form does not look right, then you know you answered some questions incorrectly (they can be tricky and non-intuitive). Keep making adjustments until the Form looks the way it should.

Check the BH wiki page for backdoor Roth to see how Form 8606 should be completed. I know off the top of my head that Lines 1 and 3 will be $6k for you and Line 2 will be $0 or blank. The only other lines that may have numbers in them are Lines 16 and 18 (the latter should be $0).

3. Health insurance proof

Where do I enter my 1095-C showing I had health insurance? Or is that not required anymore?

It is not needed to file your tax return. See this from the IRS with relevant excerpt:

If you are expecting to receive a Form 1095-A, you should wait to file your income tax return until you receive that form. However, it is not necessary to wait for Forms 1095-B or 1095-C in order to file.

Some taxpayers may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their tax return. While the information on these forms may assist in preparing a return, they are not required. Individual taxpayers should not wait for these forms and file their returns as they normally would.

4. 1099-B for TLH

I TLH'd about 15-20 lots each of my two international mutual funds in 2022. When i entered the information from my 1099-B for long term losses, my fed tax liability didn't change—why? I didn't have any capital gains last year. On schedule D, box 16 is -9,023 (the total amount of losses for both funds) but box 21 is -1500. Shouldn't it show -3k? This way, I'd have $6,023 to carryover to 2023. The income tax summary in the software shows -1500 for capital gains.

I recommend continuing to make adjustments in the tax software until it gives the result you expect. If you didn't realize any gains in 2022 and you had total realized losses of $9023, then $3k should be deducted from ordinary income and the remaining $6023 carried forward.

5. Standard deduction

I noticed when I chose the standard deduction, my tax liability didn't change in the software. Is this because the software shows your refund/liability as you complete the forms with a default selection that you are taking the standard deduction?

In the tax software I use (not FreeTaxUSA), it defaults to the standard deduction. After income and other adjustments are entered, it asks if I want to itemize (I can tell at that point whether it is better to take the standard deduction or itemize).

[HomeStretch]

OP, first thing is to figure out whether or not you are eligible to deduct your 2022 TIRA contribution. You will get better feedback if you let us know this.

This IRS Topic may be helpful:
https://www.irs.gov/retirement-plans/pl ... ion-limits

[WaffleHouse]

5. Standard deduction

I noticed when I chose the standard deduction, my tax liability didn't change in the software. Is this because the software shows your refund/liability as you complete the forms with a default selection that you are taking the standard deduction?

I've used FreeTaxUSA and you've guessed right here. It assumes the standard deduction by default. So when you confirm that you want the standard deduction, your tax liability will not change in the interface. That's normal.

[SconnieBro]

https://thefinancebuff.com/how-to-backd ... axusa.html

[Aguilar]

I took a first pass at doing my fed taxes using FreeTaxUSA and ran into some roadblocks. Would really appreciate some guidance.

1. 1099-DIV

When filing 1099-DIV, FreeTaxUSA asks "Is this a mutual fund that has U.S. Government interest income?" do I check yes? two of the funds in question are munis (NY and natl limited term tax exempt) but the rest aren't.

I listed my amount ($1249) in tax-exempt dividends in box 12. I also specified the amount of the $1249 that is from bonds issued by NY, where I live.

I'm then asked "You've told us that this mutual fund has U.S. Government interest income. This income is not taxed by states. Enter the amount of your $21,486 of ordinary dividends that are from U.S. Government interest:" Do I put the amount of the natl limited term tax exempt here ($488) or all $1249, which again, represents both munis?

US Gov't interest income is income from debt issued by the US government, not a state government. For example, US Treasury Notes or a money market fund that invests in US Treasuries (such as VUSXX at Vanguard). This type of income is exempt from state tax. However different states have different rules for funds that invest in a mix of US Treasuries and other bonds (such as Total Bond Market funds).

Muni funds that you are mentioning above are note US government income. They are exempt from federal tax but (sometimes) not state tax.

So whether to check "Yes" on the US Gov't income question depends on whether you are talking about a fund that owns US Treasury bonds. For munis you would click "no".

Thank you. I updated my answer to NO since the funds are munis and equity funds.

In the next screen it says:

You entered tax-exempt dividends of $1,249 in Box 12 of your Form 1099-DIV.
Is any of your $1,249 of tax-exempt dividends from a bond issued by the state you lived in (or by a municipality located in your state)?
I put YES since I have VNYTX Vanguard New York Long-Term Tax-Exempt Fund Investor Shares - is this correct? While it's not a bond, it's a fund of muni bonds issued by NY state

Then it says Enter the amount of your $1,249 of tax-exempt dividends that was from bonds issued by your state (or a municipality in your state):
I entered 761, which is the total dividends from VNYTX I received in 2022.

[Aguilar]

… 2. Backdoor Roth

In 2022 I executed a backdoor Roth for the first time. … I contributed $6k … to TIRA. When I converted it to my Roth…, the $6k cash was worth $6k and pennies. …

Where do I enter the cost basis for the Roth conversion? The software asks me if I made any IRA contributions in 2022 and to specify the amount per TIRA and/or Roth. I entered $6k for TIRA only and my fed taxes owed was reduced by $1920. How do I validate that this the correct outcome?

The software also asks "'Did you withdraw any traditional IRA contributions by the tax filing due date?' I put $6k here but I'm not 100% sure if a conversion is treated as a withdrawal by the IRS. …

I do not use FreeTaxUSA.

If entering the $6k TIRA contribution causes your federal taxes owed to decrease, then the tax prep software is saying your TIRA contribution qualifies as deductible rather than being nondeductible (as per step 1 of the backdoor Roth). For your contribution to be deductible, you must not be covered by a workplace plan or your income must be below the 2022 IRS limit.

If your TIRA contribution is deductible, it means you didn’t do a backdoor Roth (i.e., a non-deductible TIRA contribution/non-taxable Roth conversion) and your TIRA basis is $0. Rather you made a deductible TIRA contribution and then did a taxable Roth conversion. Not a big deal as both ways get you to the same place tax-$-wise.

You should have received a 2022 Form 1099-R from your brokerage for the 2022 TIRA distribution of $6000 + pennies. You should enter the full amount of the distribution and tell the software that you converted the distribution to a Roth IRA. At this point, the federal taxes owed should increase as the conversion is taxable.

Your Form 1040 filing should include Form 8606. If your TIRA contribution is deductible, only Part II (for the Roth conversion) will be filled out.

You should receive by May 15, 2023 two 2022 Form 5498s showing the $6k contributed to your TIRA and the $6k + pennies that went into your Roth IRA. They are informational only (not entered into your 2022 tax return). Keep these for your files until your TIRA and Roth IRA are fully emptied in the future.

Thanks, I followed the instructions here and my tax liability went down accordingly, so I think the problem is solved. My initial mistake was answering Yes when asked if I withdrew the contributions to my TIRA in the same tax year. I didn't realize a TIRA to Roth conversion doesn't constitute a withdrawal by IRS standards.

[Aguilar]

https://thefinancebuff.com/how-to-backd ... axusa.html

Thanks SconnieBro, worked like a charm.

[Aguilar]

4. 1099-B for TLH

I TLH'd about 15-20 lots each of my two international mutual funds in 2022. When i entered the information from my 1099-B for long term losses, my fed tax liability didn't change—why? I didn't have any capital gains last year. On schedule D, box 16 is -9,023 (the total amount of losses for both funds) but box 21 is -1500. Shouldn't it show -3k? This way, I'd have $6,023 to carryover to 2023. The income tax summary in the software shows -1500 for capital gains.

I recommend continuing to make adjustments in the tax software until it gives the result you expect. If you didn't realize any gains in 2022 and you had total realized losses of $9023, then $3k should be deducted from ordinary income and the remaining $6023 carried forward.

I think I figured this out.

I had $9023 in realized losses. $4957 in long term losses. $4066 in short term losses. No cap gains. Software now shows I have a short-term capital loss carryover of $2,566 and a long-term capital loss carryover of $4,957 from 2022 to 2023.

Schedule D line 21 says 1500. It's in parentheses but there's no negative symbol. I'm filing married filing separately (our divorce was just finalized in Jan 2023) so I think that's why it shows 1500, not 3000.

So does this mean a $1500 loss is applied to my taxable income in 2022 and the rest of the losses carry over to 2023?

[Aguilar]

Bump for my last few posts here. Hoping to get replies on these for my taxes.

[Katietsu]

I think I figured this out.

I had $9023 in realized losses. $4957 in long term losses. $4066 in short term losses. No cap gains. Software now shows I have a short-term capital loss carryover of $2,566 and a long-term capital loss carryover of $4,957 from 2022 to 2023.

Schedule D line 21 says 1500. It's in parentheses but there's no negative symbol. I'm filing married filing separately (our divorce was just finalized in Jan 2023) so I think that's why it shows 1500, not 3000.

So does this mean a $1500 loss is applied to my taxable income in 2022 and the rest of the losses carry over to 2023?

Yes.

[Aguilar]

I took a first pass at doing my fed taxes using FreeTaxUSA and ran into some roadblocks. Would really appreciate some guidance.

1. 1099-DIV

When filing 1099-DIV, FreeTaxUSA asks "Is this a mutual fund that has U.S. Government interest income?" do I check yes? two of the funds in question are munis (NY and natl limited term tax exempt) but the rest aren't.

I listed my amount ($1249) in tax-exempt dividends in box 12. I also specified the amount of the $1249 that is from bonds issued by NY, where I live.

I'm then asked "You've told us that this mutual fund has U.S. Government interest income. This income is not taxed by states. Enter the amount of your $21,486 of ordinary dividends that are from U.S. Government interest:" Do I put the amount of the natl limited term tax exempt here ($488) or all $1249, which again, represents both munis?

US Gov't interest income is income from debt issued by the US government, not a state government. For example, US Treasury Notes or a money market fund that invests in US Treasuries (such as VUSXX at Vanguard). This type of income is exempt from state tax. However different states have different rules for funds that invest in a mix of US Treasuries and other bonds (such as Total Bond Market funds).

Muni funds that you are mentioning above are note US government income. They are exempt from federal tax but (sometimes) not state tax.

So whether to check "Yes" on the US Gov't income question depends on whether you are talking about a fund that owns US Treasury bonds. For munis you would click "no".

Thank you. I updated my answer to NO since the funds are munis and equity funds.

In the next screen it says:

You entered tax-exempt dividends of $1,249 in Box 12 of your Form 1099-DIV.
Is any of your $1,249 of tax-exempt dividends from a bond issued by the state you lived in (or by a municipality located in your state)?
I put YES since I have VNYTX Vanguard New York Long-Term Tax-Exempt Fund Investor Shares - is this correct? While it's not a bond, it's a fund of muni bonds issued by NY state

Then it says Enter the amount of your $1,249 of tax-exempt dividends that was from bonds issued by your state (or a municipality in your state):
I entered 761, which is the total dividends from VNYTX I received in 2022.

Last lingering question above in bold. Any helpers?