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For anyone dealing with backdoor Roth issues in TurboTax, here's exactly what you need to do: 1. Enter your non-deductible traditional IRA contribution first 2. Make sure to specify it's NON-DEDUCTIBLE 3. Complete the Form 8606 section entirely 4. Only THEN enter your Roth conversion information 5. Verify the basis amount carries over to the conversion screen I do this every year and it works perfectly. If you do these steps out of order, TurboTax gets confused and can't track your basis correctly.
Do you know if this same process works in H&R Block's software? I'm having the same issue there and their support has been useless.
I haven't personally used H&R Block's software recently, but the general principle is the same. You need to make sure you've entered your non-deductible contribution information and completed the equivalent of Form 8606 before you enter the conversion information. The specific navigation and screens will be different, but the sequence is what matters. Most tax software struggles with backdoor Roth conversions if you don't follow the correct order of operations. Try looking specifically for the Form 8606 section in H&R Block's software and complete that first before handling the conversion.
something nobody mentioned yet - if you have ANY other traditional IRA money with pre-tax dollars (like old 401k rollovers), the pro-rata rule is gonna mess up your backdoor roth!! the entire conversion isnt tax free even if this specific contribution was non-deductible. turbo tax should handle this if you enter all your ira balances correctly but a lot of ppl forget this part.
Hey everyone, I'm a tax preparer (not a CPA) and I see this Form 8863 issue all the time. Another thing to check is if you received any scholarships or grants. Those reduce your qualified education expenses for the Lifetime Learning Credit calculation. For example, if you paid $5000 in tuition but received a $4000 scholarship, you can only use $1000 as your qualified education expense. That might be why you're ending up with zero, especially if your education expenses weren't that high after considering scholarships. Also, make sure you're eligible for the credit based on your income. The Lifetime Learning Credit phases out at higher income levels (starts phasing out at $80,000 for single filers and $160,000 for joint filers for 2024 returns).
That's a great point! I didn't even think about my scholarship reducing my eligible expenses. I received about $3,500 in scholarships last year. So if my tuition was $5,000, I would only be able to claim $1,500 for the Lifetime Learning Credit?
That's exactly right! You would only be able to claim $1,500 as your qualified education expenses in that scenario. And remember, the Lifetime Learning Credit is calculated as 20% of your qualified expenses, so your potential credit would be $300 ($1,500 Ć 20%). Then, that potential credit amount gets compared to your remaining tax liability on the Credit Limit Worksheet. If your remaining tax liability is less than $300 (or zero), that's why you'd end up with zero or a reduced credit amount on line 19 of Form 8863.
Has anyone tried using a different tax software? I was using FreeTaxUSA and had the exact same issue with Form 8863 and the Lifetime Learning Credit. Switched to TaxSlayer and somehow it calculated a credit for me. Not sure if it's correct but it definitely gave me a different result.
I used both TurboTax and H&R Block and got the same zero result with the Lifetime Learning Credit. I think different software might do the calculations slightly differently, but the end result should be the same if you're entering the same information. Might be worth double-checking that you input everything identically in both programs.
Don't forget about wash sale rules! While technically they don't apply to crypto right now (since crypto is property not a security), there's been talk about changing this. If you're trying to harvest losses while rebuying positions, be aware this loophole might close soon.
Wait, so are you saying I could sell some of my underwater crypto positions to harvest the losses, then immediately rebuy the same crypto, and it's not subject to the 30-day wash sale rule that applies to stocks? That would be helpful for offsetting some of the gains.
Yes, that's exactly right. Currently, cryptocurrency is treated as property by the IRS, not as a security, so the wash sale rules don't apply. You can sell crypto at a loss, claim the tax deduction, and then immediately repurchase the same crypto without waiting 30 days. Just be aware that this is a loophole that Congress has been talking about closing. There have been several proposed bills that would apply wash sale rules to crypto in the future, so this strategy may not be available forever. Always document these transactions carefully in case questions come up during an audit.
What software are people using to actually file their crypto taxes? I've been using TurboTax but it seems limited for handling complex crypto situations.
One thing nobody mentioned yet - if you can show reasonable cause for the late payment, you might get the penalties removed entirely. But "I don't have the money" usually doesn't count as reasonable cause. Better options would be: - Set up an IRS payment plan today for the full amount - Pay by credit card (their fee is usually less than the penalties) - Borrow from family for 24 hours Not having all the money today is a common problem, but the IRS has heard every excuse. The payment plan might be your best bet if you really can't pay the full amount.
Thanks for mentioning the payment plan option! Do you know if setting up a payment plan today (even if I plan to pay it off tomorrow) would help me avoid the penalties completely? Or would I still get hit with the 0.5% for the unpaid portion?
Setting up an installment agreement (payment plan) doesn't eliminate penalties completely, but it reduces the late payment penalty from 0.5% to 0.25% per month. You'd still owe interest on the unpaid balance too. If you're literally only going to be one day late, it might not be worth the hassle of setting up a formal payment plan, especially since there's a fee to establish one ($31 for online setup with automatic payments). For a one-day delay on $6k, you're looking at around $30 in penalties without a plan versus maybe $15 with a plan, but then you'd pay the $31 setup fee. The math doesn't work in your favor for such a short delay.
Just as a data point - I paid about 3 days late last year (around $8,000 unpaid) and my total penalties and interest came to $42. They did charge the full month's penalty rate even though it was only 3 days late. I called and asked for abatement since I've never been late before, and they approved it immediately. Took like 5 minutes on the phone once I finally got through.
Was the abatement automatically applied or did you have to wait for them to send you something? I'm in a similar situation but hate waiting for mail from the IRS.
Giovanni Colombo
Just an FYI - I work at a tax prep office and we're seeing lots of clients in this exact situation. The distinction between Zelle and other payment apps is important. Zelle operates differently because it's owned by banks, not a separate payment processor. Zelle claims they don't issue 1099-Ks at all because they're just facilitating direct bank-to-bank transfers, not actually processing payments themselves. But that doesn't mean you're off the hook! If you're getting regularly scheduled payments of the same amount, that looks exactly like income to the IRS. If you get audited, they'll ask for bank statements and those Zelle deposits will be right there. Better to report it all now than pay penalties and interest later.
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QuantumQuester
ā¢Thanks for this info! So even if Zelle doesn't report it, I should still be reporting this income? Would I just add it as "miscellaneous income" or would I need to file as self-employed with a Schedule C?
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Giovanni Colombo
ā¢You should definitely report the income regardless of whether Zelle issues a 1099-K. Since you're receiving regular payments for work performed, this would be considered self-employment income, not miscellaneous income. You'll need to file Schedule C to report your business income and expenses, and Schedule SE to calculate your self-employment tax. This is actually better for you in many ways because with Schedule C, you can deduct legitimate business expenses that reduce your taxable income. If you have a home office, use your phone for work, or have any other expenses related to this work, those can potentially be deductible.
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Fatima Al-Qasimi
Is anyone else noticing that the payment apps are super inconsistent with reporting? I get payments through CashApp, Venmo AND Zelle for my small business and last year only PayPal sent me a 1099-K even though I made over $10k on each platform.
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Dylan Cooper
ā¢Same experience here. I got a 1099-K from PayPal but nothing from Venmo despite making similar amounts on both. I reported everything anyway because I don't want headaches with the IRS, but the inconsistency is frustrating. I think different platforms are interpreting the requirements differently.
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