Tax-Related Questions

A Roth backdoor contribution allows you to sidestep the income limits that prevent folks from contributing directly to a Roth IRA. Instead, one makes a nondeductible deposit to a Traditional IRA and converts those after-tax dollars to a Roth without incurring any additional taxes.

Logic: Since you never took a tax deduction on the initial contribution to the Traditional IRA you will not be taxed on those funds that are moved to a Roth.

Individuals who utilize this method need to make sure that they report the nondeductible contribution on the 8606 on their tax return.

More information and instructions can be found on the following links:

If you use TurboTax: https://thefinancebuff.com/how-to-report-backdoor-roth-in-turbotax.html

If you use H&R Block software: https://thefinancebuff.com/how-to-backdoor-roth-hr-block-software.html

If you use an accountant, you will need to, and let them know you made a nondeductible contribution to a Traditional IRA, that was converted into the Roth IRA, and provide them with the 1099-R for the Roth conversion.

You will receive a 1099-R from LPL with the necessary information to input or provide to your accountant.

For federal taxes, you can use the IRS Direct Pay system here: https://www.irs.gov/payments/direct-pay this method doesn’t require you to create an account.

You can also pay taxes through the EFTPS system: https://www.eftps.com/eftps/Note, you will need to plan ahead as a PIN will be mailed to you which is required to create an account. If you are converting at the end of the year, please plan accordingly!

For state taxes, you can use the following link: https://www.irs.gov/businesses/small-businesses-self-employed/state-government-websites to find information on each state you need to pay estimated state taxes.

The due date depends on when the year the taxable event occurred. The deadlines are spaced out into four quarters of the year as follows:

• January 1 to March 31 – April 15
• April 1 to May 31 – June 15
• June 1 to August 31 - September 15
• September 1 to December 31 – January 15 of the following year.

**Note: If these due dates fall on a Saturday, Sunday, or legal holiday, the payments are due the next business day.

You may send estimated tax payments with Form 1040-ES, Better yet; you can pay online, by phone, or from your mobile device using the IRS2Go app. Visit IRS.gov/payments to view all the options.

In order to avoid underpayment, the best practice would be to pay 110% of last year’s tax bill. If you pay that amount, the IRS will not impose any penalties for underpayment.

Net Investment Income Tax (NIIT) is an additional 3.8% tax assessed on non-retirement asset growth when a person(s) earns above a certain threshold. More information can be found on the IRS website here: https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax

If you receive form 1099-B or 1099-S (or substitute statement) with the amounts that were reported to you and the IRS, you’ll need to use form 8949 to report any long-term capital gains/losses. The subtotals from this form will then be carried over to Schedule D (Form 1040), where gain/loss will be calculated in aggregate.

A QCD is a qualified charitable distribution that can possess many benefits. Once required minimum distributions (RMDs) begin, this can be used to satisfy the RMD requirement while avoiding your AGI being increased which could lead to a higher tax bracket or Medicare Part B premium. However, it can only be made once you are 70.5 or older.