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curbside319 OP t1_jdtuwaq wrote

Reply to comment by DeluxeXL in Fixing a basis mistake made in prior years on tax by curbside319

Thanks just to double confirm, even though I rolled over $40k into the traditional IRA in 2020 (but did not contribute money), the basis for that year and earlier is STILL just $0? For some reason, I thought that I have to account for that $40k somewhere as part of the Pro-Rata.

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DeluxeXL t1_jdtv58t wrote

>Thanks just to double confirm, even though I rolled over $40k into the traditional IRA in 2020 (but did not contribute money), the basis for that year and earlier is STILL just $0?

Yes. Only a nondeductible contribution raises IRA basis. Notice that I didn't say nondeductible IRA contribution. I said nondeductible contribution. i.e. it can come from both IRA and non-IRA. If you messed up and rolled over the contribution portion of after-tax 401k to traditional IRA, that was a nondeductible contribution. This would be the only rare case of non-IRA-based IRA basis.

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curbside319 OP t1_jdtwwes wrote

Ahh ok, I just did 2021's 8606 form exercise and line 14 came out to be ~$5500. Then let me know if this is correct...

You said I should "Once that's done, redo your entire tax return because you had taxable conversion that you didn't include, which changes Form 1040 line 4b and everything downstream. Compare the old and the new tax returns and fill out Form 1040X.
Mail the signed Form 1040X and 2021 Form 8606."

Can I do the above and then also submit my 2022 taxes in parallel given that now I know that my 2021 basis was $5500 and that unblocks me from finishing up my 2022 taxes?

Also just curious do you think I'm in for a sizable IRS penalty based on the error? Should I write a note to them and say it was an accident and hope they will be lenient? My first time ever having this happen...

Thanks so much, appreciate all this

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DeluxeXL t1_jdtz0bg wrote

>Can I do the above and then also submit my 2022 taxes in parallel given that now I know that my 2021 basis was $5500 and that unblocks me from finishing up my 2022 taxes?

Yes.

>Also just curious do you think I'm in for a sizable IRS penalty based on the error?

No idea. Pay the tax you can calculate and wait for the late bill.

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