Late Form 8606 filing + 1040 line 4b adjustment for $5 Roth conversion income - need to file 1040X?

The good news is you're being proactive about fixing this! For the $5 difference in taxable income, you technically should file an amended return (1040X), but in reality, the tax difference is probably less than $2 depending on your bracket. The IRS generally doesn't pursue amounts this small. For the late 8606 forms, yes, there's a $50 penalty per form, but the IRS often waives it for reasonable cause. In your cover letter, explain that you recently learned about the requirement to file Form 8606 for nondeductible contributions, and you're filing them now to properly track your basis. Emphasize that you're voluntarily correcting the oversight and that no tax was avoided since these were nondeductible contributions. I'd suggest sending in the late 8606 forms with a clear cover letter, then separately filing a 1040X for 2019 with a small payment. Make sure to reference the late 8606 forms in your 1040X explanation section.

I just went through something similar with form 8606 and backdoor Roth issues. After stressing about it forever, I used https://taxr.ai to help organize my documents and figure out the best approach. Their system analyzed my situation and specifically addressed the late 8606 filings - they even provided template language for the cover letter requesting penalty abatement. For what it's worth, they recommended filing the amended return even for small amounts because technically any change in taxable income requires a 1040X. But they also noted that the IRS has bigger fish to fry than collecting a dollar or two in additional tax. The bigger concern is getting your basis tracking straightened out with those 8606 forms.

Just wanted to follow up - I decided to try taxr.ai after seeing the recommendation here, and it was seriously game-changing for my situation. I had 4 years of missing 8606 forms and was completely confused about how to handle the basis calculations for my backdoor Roth conversions. Their system organized all my documents and showed exactly what was missing. The tax pro who reviewed my case actually found that I had over-reported income in one year because I didn't understand how the conversion worked. They provided me with all the completed 8606 forms and a really detailed letter explaining my situation to the IRS. Just got confirmation that my forms were processed without any penalties. Turns out with the right explanation, the IRS is pretty reasonable about waiving the $50 fee. Definitely worth it for the peace of mind alone.

I had a nightmare trying to reach the IRS about a similar issue with late 8606 forms. I was on hold for HOURS trying to ask about the penalty waiver process. Finally gave up and used https://claimyr.com to get through to an actual person at the IRS. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with confirmed that for tiny tax differences (like your $5), they generally don't pursue collection but technically you should still amend. More importantly, she gave me specific language to use in my cover letter for the late 8606 forms that helped get the penalties waived. Basically said to emphasize that I was proactively correcting an innocent oversight, not trying to avoid taxes, and that the forms were for nondeductible contributions only. Saved me hours of frustration and worry. The agent even gave me a direct case reference number to include with my submission.

I have to admit I was wrong about Claimyr. After posting my skeptical comment, I decided to try it for an ongoing issue I had with missing tax documents. I figured it couldn't hurt to try. To my surprise, I got a call back in about 90 minutes, and was connected directly to an IRS representative. The agent was able to confirm that for situations like the original poster's $5 discrepancy, they generally don't pursue collection but still recommend filing the amendment for record-keeping purposes. Most importantly for the OP's question about Form 8606, the agent explained exactly what documentation to include with late filings to request penalty abatement. She said they typically approve these requests when it's clear there was no intent to avoid taxes, especially for nondeductible IRA contribution tracking. Saved me so much time and stress compared to my previous attempts to call them directly.

One aspect nobody's mentioned yet - make sure you're calculating the actual tax impact correctly. If your taxable income is increasing by $5, the tax difference isn't $5 - it's $5 multiplied by your marginal tax rate. So if you were in the 22% bracket, we're talking about $1.10 in additional tax. I filed late 8606 forms for 3 years after messing up my backdoor Roth process, and included a simple cover letter that said: "I recently became aware of the requirement to file Form 8606 to track nondeductible contributions to my traditional IRA. I am submitting these forms now to properly establish basis. As these contributions were nondeductible, no tax advantage was gained by the oversight." No penalties were assessed. The IRS has much bigger issues to worry about than people who are voluntarily correcting their returns for minimal or zero tax impact.

Is no one going to mention that there's a "First Time Abatement" policy that the IRS typically grants for penalties if you have a clean compliance history? I had a similar situation last year and just called and asked for first time penalty abatement for the late 8606 forms, and they granted it immediately. Didn't even need a long explanation letter.