Dave Woods <davidwoods[at]verizon.net> wrote:

- quote -

A traditional IRA offers a rare double tax benefit. For
example, someone with an AGI of $16,000 could put $1,000
into a traditional IRA, reducing his AGI to $15,000. In
addition to this reduction of taxable income, he also gets a
credit for $500, which is 50% of his contribution.

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Dave Woods wrote:

- quote -

The problem, as I recall, is that this credit was originally
designed around a 15% tax rate. Then, Congress added the 10%
bracket and it screwed the whole thing up (not enough tax
for the credit to offset, as you note). I believe there is
only one filing status (HOH, I think) where you can still
get the FULL amount of the credit with the proper scenario.

I'd have to check, but I believe all the situations where
I've been able to use the credit DO involve Roths or
non-deductible contributions. I recall one where the
~optimum~ deal resulted in deducting about $800 of the IRA
and NONdeducting the other $1,200. Weird!

MTW

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"Harlan Lunsford" <lunstax[at]bellsouth.net> wrote:
- quote -

Harlan, all kidding aside, its not a matter necessarily of
income. While its true I have few clients who even qualify
from that standpoint, if you run a calculation, it is VERY
difficult to get the credit. Why?

Demographics. Many people who qualify based on income
either are ineligible (students and dependents) or have
other preceding credits and deductions that wipe out their
tax. Case in point, try hard to come up with a scenario
where a person can maximize the credit. Almost impossible
to do at the lowest income level. You almost need a Roth or
non-deductible IRA contribution because otherwise the
deduction of the contribution lowers taxable income to a
level where you don't wipe out the all the tax before
maximizing the credit. One you start getting into
dependents, you have the dependent care credit, child tax
credit, exemptions, head of household, etc. By the time you
get through all that (assuming its a single person as a
married couple isn't likely to be making such small dollars)
there isn't much if any tax left.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Boston, MA 02109

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Dave Woods wrote:
- quote -

Your reply is most interesting, Dave, since many of us have
indicated to the contrary. I reckon we all have clients who
do not have the high incomes as up in "Tax"achussetts!
(grin.

But that's okay. More power to ya'!

Cheer$,
from your poor EA cousin,
Harlan Lunsford, EA n LA

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"Gene E. Utterback, EA" <eagent[at]alliancetax.com> wrote:

- quote -

As I previously stated, few clients qualify for much if any
of the credit, and presumably any competent preparer is
using tax software that will automatically pick it up.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Boston, MA 02109

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D. Stussy wrote:

- quote -

The tax programs that I've used in recent history (TaxACT
and AmTax) pushed to Column "C" on Form 1040X (not Column
"A"). So, you ALWAYS get the full diagnostics, etc.

Back in the last century, I used TurboTax (or whatever it
was called). At that time, at least, their "X" pushed to
Column "A". I remember having a big argument with one of
their high level people over that, and shortly thereafter I
dumped 'em. <g
MTW

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"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

For an individual preparing their own return it should be a
simple matter to reopen the tax return software and plug in
the contribution to see what happens, then compare the
results with the return they filed. For a self prepared
return there would be no cost for this at all and it would
give the taxpayer an idea of how much money they left on the
table.

For professionally prepared return, it would depend on what
level of service was offered to the clients. I do my very
best to do my very best for every client I prepare a return
for. The ones that don't make much money are entitled to
the same zealous efforts from me as the ones whose AGIs
exceed $600K. Besides, the clients who qualify for a credit
associated with a Roth contribution are the clients that I
expect to grow into substantial clients in the years to
come. They have the discipline to save even when their
incomes are low. And make no mistake, discipline is the
primary factor necessary when it comes to savings, not cash
flow!

Since I believe that my clients have paid me to do the best
job I can, I feel morally and legally obligated to check for
this credit when I prepare the return. Had I done the
original return and missed the credit, assuming I had
sufficient information to have calculated it, I would
prepare the amended return for free no matter how small the
additional refund would be. Of course, if I am fixing
someone else's work - be it another professional or a PBC
return, the of course I'd advise the client that my fee
could very well exceed the refund and let them make the
decision.

I'd guess that about 3% of the returns I do qualify for this
credit when a Roth is involved. The vast majority of those
are recent college grads on their first jobs who can't
participate in company sponsored plans who are still relying
on their parents for a bit of financial assistance but who
are NOT dependents of their parents - and in more than half
the cases either the parents are the ones giving the kid the
money to fund the Roth or the kids are using their refunds
to fund the Roths. So my average client for this is a
young, educated, disciplined person - likely the kind of
person who will not only succeed in life, but whom I expect
to excel.

So, my question is this, how does one expect to retain
clients and grow a practice if they don't take the time to
check for things like this? After, isn't this exactly what
we, as professionals are supposed to be getting paid for, to
make sure things like this don't get overlooked?

Gene E. Utterback, EA

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MTW wrote:
- quote -

For an initial return, yes, but the last time I looked at
various packages, flagging things for AMENDED returns often
didn't happen.... It seems as if it was "over-expected"
that the return was done correctly the first time.

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D. Stussy wrote:
- quote -

It depends on what part of the country you're in, as to the
probability that people can qualify for the credit. In
these parts, where in general incomes are lower, I find
quite a few do qualify and are quite pleased at the extra
credit.

Also I take the time given the right circumstances (income,
other factors, etc) to see if a client might actually
benefit from making a contribution before 4/15. Another way
to benefit your clients.

Cheer$,
Harlan Lunsford, EA n LA

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D. Stussy wrote:

- quote -

Decent software should flag this automatically. About 5% of
my clients qualify.

MTW

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"Gene E. Utterback, EA" <eagent[at]alliancetax.com> wrote in

- quote -

Thanks Gene!

--
Best regards
Han
email address is invalid

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Gene E. Utterback, EA wrote:
- quote -

In practicality, so few people qualify for that credit, is
it even worth the time to check?

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"Herb Smith" <smithff33[at]aol.com> wrote:
- quote -

This answer is not entirely correct - Roth contributions are
made with after tax dollars and they are not deductible.
However, depending on your circumstances a Roth contribution
may generate a retirement credit. I would suggest you
recalculate your return to see if the Roth contribution
created or increased the retirement credit then decide
whether you need to amend or not.

Gene E. Utterback, EA

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Thanks Harlan, and Dave.

I was in plenty of time (days), and that was good, because
for some reason Fidelity didn't accept an electronic
transaction for my spouse (who is as electronic as they
come, especially with genealogy). The mailed check was even
in time ...

--
Best regards
Han
email address is invalid

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Han <noone[at]nospam.invalid> wrote:

- quote -

Roth IRA contributions are made with AFTER TAX funds,
therefore there is no need to report the contribution
ANYWHERE on your return. Your account custodian will make
the notification to the IRS, per form 5498. Don't hold your
breath waiting for an IRS inquiry :-)

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- quote -

Roth contributions are reported if the taxpayer uses them to
claim the saver's credit. But I don't think the IRS will
come after you for failing to claim the saver's credit.

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Han wrote:

- quote -

Nope. It's not a tax return item. Just so you actually
set the account up and made the contribution (and have
evidence) before 11:59 p.m. April 15th. (I like to leave a
minute just in case!)

Cheer$,
Harlan Lunsford, EA n LA

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- quote -

Thanks, Frank!

--
Best regards
Han
email address is invalid

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- quote -

The only reason most tax software asks you about your Roth
contributions is to see if you were eligible. If you were
(met the income limits), there is no reporting.

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

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I filed my 2003 taxes before April 15, 2004, but then
decided to make Roth IRA contributions for 2003 (before Apr
15 as well). I didn't mention Roth IRA contributions in my
tax return as presently filed.

DO I need to amend the return (joint, both filers made
contributions), or should I wait for an IRS inquiry (if
any)?

--
Best regards
Han
email address is invalid

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