Basis in Traditional IRA and filing taxes

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
mhk
Posts: 2
Joined: Fri Feb 09, 2024 8:55 am

Basis in Traditional IRA and filing taxes

Post by mhk »

Any help with this matter would be appreciated. I am 76 so have been taking RMDs for several years. For the past 5 years I have used Turbo Tax to do my own taxes. I have $16,000 basis in a Traditional IRA (Form 8606 was filed in previous years), but once I started doing my own taxes I did not include the basis in my return. I think I previously ignored the question in Turbo Tax because I didn't know what to do. Doing my own taxes makes me nervous but the CPA was charging too much for a very simple return. My question - can I start using the basis on this year's return even though I have not included it before? I thought it would help with taxes in future years as my RMDs become larger. If it matters, I am single, female, very low tax bracket. Thanks for all the info on this site, and the help many of you so graciously provide.
Alan S.
Posts: 12550
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Basis in Traditional IRA and filing taxes

Post by Alan S. »

mhk wrote: Sun Feb 11, 2024 11:08 am Any help with this matter would be appreciated. I am 76 so have been taking RMDs for several years. For the past 5 years I have used Turbo Tax to do my own taxes. I have $16,000 basis in a Traditional IRA (Form 8606 was filed in previous years), but once I started doing my own taxes I did not include the basis in my return. I think I previously ignored the question in Turbo Tax because I didn't know what to do. Doing my own taxes makes me nervous but the CPA was charging too much for a very simple return. My question - can I start using the basis on this year's return even though I have not included it before? I thought it would help with taxes in future years as my RMDs become larger. If it matters, I am single, female, very low tax bracket. Thanks for all the info on this site, and the help many of you so graciously provide.
You can place the 16k on line 2 of your 2023 8606, and the IRS will most likely do nothing.

Of course, you could also amend your 2020 (if you took a distribution that year for which RMDs were waived), and also your 2021 and 2022 returns to recover some basis for those years, and that would generate small refunds for each year. Technically, the IRS could say that the basis you should have claimed in prior years and did not was forfeited, but they have not been doing that, so you will likely be able to start reporting the basis in 2023, but if you do so you should plan on filing the 8606 as long as you still have an IRA. Don't plan to file the 8606 only in years you want to from here on. Either amend the 2020 and later returns, do not amend and start with 2023, or just ignore the basis if you think the 8606 will be too much trouble to bother with in the future.
niagara_guy
Posts: 1153
Joined: Tue Feb 11, 2020 7:32 am

Re: Basis in Traditional IRA and filing taxes

Post by niagara_guy »

I would fill out the form 8606 for the years you didn't file it. If it's a small amount I would probably just send the IRS a letter and the 8606 forms you did not file, the error will be in their favor. If it's a large amount of money I would probably amend the returns to get that money back (can you amend a return that's more than 3 years old?).

I did not file form 8606 many years ago, when I discovered my mistake I filled out all the missing 8606s, sent them with my return and a letter to explain it. I never heard back from the IRS. I was not taking money out so that did not change my return.
Topic Author
mhk
Posts: 2
Joined: Fri Feb 09, 2024 8:55 am

Re: Basis in Traditional IRA and filing taxes

Post by mhk »

Thank you, this is exactly what I wanted to hear. I would prefer not to amend any returns, so will just go forward with 2023 and hope for the best.
Alan S.
Posts: 12550
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Basis in Traditional IRA and filing taxes

Post by Alan S. »

niagara_guy wrote: Sun Feb 11, 2024 11:46 am I would fill out the form 8606 for the years you didn't file it. If it's a small amount I would probably just send the IRS a letter and the 8606 forms you did not file, the error will be in their favor. If it's a large amount of money I would probably amend the returns to get that money back (can you amend a return that's more than 3 years old?).

I did not file form 8606 many years ago, when I discovered my mistake I filled out all the missing 8606s, sent them with my return and a letter to explain it. I never heard back from the IRS. I was not taking money out so that did not change my return.
You never heard from the IRS because there are several years of anecdotal evidence that the IRS does nothing with 8606 forms sent in to document former non deductible contributions. In such cases it is now recommended to just add up prior non deductible contributions for which Form 8606 was never filed, and show the total on line 2 of the next 8606 filed for a current return.

Of course, in the case of the OP, the 8606 forms were apparently filed when the ND contributions were made, but not filed for the first years of distributions, and the recommendation is similar - ie just show the current amount of IRA basis on line 2 of the current 8606, and the basis will be applied to the current distribution. After the current year, be sure to file the 8606 for all subsequent ND contributions and distributions.
Post Reply