Advanced Underwriting Consultants

Question of the Day – April 27

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: My client sent a check into her personal IRA account on April 15, claiming a $5,000 income tax deduction on her 2011 tax return filed the next day.  The check bounced, as she found out on April 19.  Can she make good on the check now and still preserve her 2011 tax deduction?

Answer: Unfortunately, it’s too late.  The client needed to deposit good funds into her IRA by the tax filing deadline (April 17, 2012 for 2011 taxes).  Since that didn’t happen, no deductible IRA contribution is permitted for 2011.

There’s a private letter ruling on this kind of situation, where the IRS ruled that an IRA rollover check that was deposited within the 60 day window but bounced was not a proper rollover when the check was replaced later.

Since the client cannot make a contribution for 2011 after the deadline, she will need to file an amended tax return as well.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.

Question of the Day – August 31

Ask the Experts!

Here’s the question of the day.

 

Question: My client intends to make a contribution to a Roth IRA for 2011 in April of 2012.  If it turns out the client earned too much in 2011, can the contribution be applied to calendar year 2012?

Answer: Yes, assuming the client qualifies to make a Roth IRA contribution for 2012.

 

In the case of a traditional IRA, contributions made between April 16 and December 31 of a calendar year are assumed to be contributions made for that calendar year. On the other hand, traditional IRA contributions made between January 1 and April 15 may be a contribution for either that calendar year or the prior calendar year. The taxpayer must indicate on the form submitted to the IRA custodian to which year the contribution applies.

 

Here’s an example. On December 1, 2010, Sally made a traditional IRA contribution of $3,000. On January 5, 2011, Sally made an additional contribution of $3,000 and reported to the IRA custodian that this was a 2010 contribution.

On April 15, 2011, Sally filed her 2010 Federal Income Tax Return and took a deduction of $6,000 for an IRA contribution.  Some time later (but in no case later than May 31) the IRA custodian issued a Form 5498 with copies to both the taxpayer and the IRS indicating Sally made $6,000 in 2010 traditional IRA contributions.

 

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.