The IRS Audit Blog

Posts Tagged ‘traditional ira’

4 steps to undo a Roth IRA conversion

Follow these helpful hints to correctly recharacterize your Roth to a traditional IRA.

Should You Convert Your IRA To A Roth IRA?

Question: Traditional IRA to Roth IRA recharacterization.?

I contributed 4000 to my traditional IRA (T-IRA) in oct 2007 for 2007 and then 5000 again for 2008. Now I want to recharacterize my 2007 contribution which is 4000 to Roth IRA.

I follow the IRS 590 publication I am unable to decide what will be my account opening balance and what would be my account closing balance.
Since I have made 2008 contribution of 5000, I am not sure how to find the earnings for my 2007 contribution of 4000. Can anyone help?
I have called my IRA manager byt they have asked me to calculate the earning, thats why I have posted it here.
i know the formula earnings= contribution x(account closing balance – account opening balance )/account opening balance
this works great if I did not put the 5000 for 2008. Now my problem is I have earnings from my 2008 contributions also

Answer: Couldn’t you just break this math problem down into multiple pieces and then total the results?

1. You contributed $4K in Oct 2007.
2. The balance immediately prior to (i.e., the day before) your $5K contribution in 2008 would be totally allocated to the $4K contribution, right? What is that amount?
3. Next add that total amount to your $5K contribution. What percent of the total is that prior amount? (i.e., what is the ratio?)
4. Any gains that you received from that point on, you should pro-rate (by that ratio) between your original $4K contribution and your final $5K contribution.
5. Add those pro-rated gains (allocatable to the $4K contribution) to #2 above. That should give you the total amount associated with your initial $4K contribution.

“Any problem can be made simple if you break it into small enough pieces.”
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New Roth retirement account options for 2010

When deciding whether to save for retirement using a traditional or Roth IRA, many people wrestle with the question, “When I retire, will my tax rate be higher or lower than it is today?”

dylan burns as michael jackson

Question: What are the benefits of starting a LLC instead of filing a Schedule C?

I’ve been doing some consulting work on the side and filed a Schedule C last year (and plan to do the same this year) as a sole proprietorship. My “office” won’t qualify for the IRS’ rules about claiming a home office, so I pay taxes on almost all of what I make. Would finding some other business structure help me save taxes?

Answer: There’s not much difference in tax benefits, the biggeet benefit in LLC is that you can’t have your personal assets given to a plaintiff in a lawsuit because you’ve segregated your personal life from the company’s.

6 Mistakes to Avoid When Converting to a Roth IRA

RISMEDIA, January 5, 2010—(MCT)—As years go, 2010 is on course to be a blockbuster for retirement-account owners. Starting this month, all Americans who own a traditional IRA— not just those who have modified adjusted gross income under $100,000—will be able to…

Ch. 2 IRS; LLC Tax

Question: Have you been audited for reporting a loss on your self directed IRA?

I invested in real estate in 2005, but need to sell in 2009 or 2010. I believe the net loss will be aproximately 20k. I am worried that reporting that large of a loss will trigger an IRS audit, and I am wondering if anyone else has had a similar experience. I could hold on to the property for a few more years but it is steady losing money, and I sort of want to be done with it.
Yes I agree this is a rare occurrence. It is a self-directed IRA, not a traditional IRA.

Answer: Unless you have cashed in all your IRAs in the year of sale (assuming this is a traditional IRA – ALL traditional IRAs),and you have a net loss of ALL IRAs, you will not have a taxable loss at all.

It will not be reported on your tax return at all.

Helen, EA in PA

Avoid these common tax errors and audit triggers

No business wants to have its tax returns examined any more closely than necessary. Here are some of the most common errors businesses make when filing their taxes.