[USER]

My tax preparer and I are at a standoff because he insists that I need to pay a 6% penalty (form 5329) for doing a “backdoor” Roth IRA because I am a high earner. Little changed with my income from 2020 and 2021 to 2022. He completed my taxes those years as well and we were not subjected to the penalty.

His last email to me was that it was the “IRS regulation and that he can’t change it”. Clearly communicating my questions/concerns isn’t working. Getting logical explanations about the discrepancies from year to year isn’t working.

As it stands now, he will win this standoff as he has already been compensated in full ($1500, rental properties, business, etc) for 2022 taxes. I’m fully expecting him to ghost me. At this point, I have a copy of the return and for my sanity just may try to use software and input the numbers and file it myself.

We had similar problems last year, but they were resolved after much less back and forth (but similar levels of frustration). I’m trying to be proactive NOW and find a new preparer just so I can avoid this flustercluck next year.

I would think the location isn’t important but for what its worth I’m located In the DC metro area.

[Joel]

I do them myself. Always have. Only consulted with a CPA once. He gave me an hour for free and I had a question about how to handle a legal settlement I didn’t know the answer to.

Backdoor Roth IRAs are relatively simple. Is he filing Form 8606? Form 8606, Part I reports the cost basis in your Traditional IRA(s), including any new nondeductible contributions. Form 8606, Part II performs the Pro-Rata Rule calculation to determine how much of the conversion was taxable and how much was not.

For you to owe a 6% penalty you would have to have made an excess contribution to a Traditional or Roth IRA. Since there is no income limit on nondeductible Traditional IRA contributions, I’m not sure how it’s coming up with the 6% penalty. All I can think of is that he’s thinking you made a disallowed Roth IRA contribution. But I thought the penalty on the excess contribution was paid in the following tax year in that scenario. That’s because you have until the tax filing deadline to take a corrective distribution of the excess contribution.

[Lita]

I did backdoor Roth for a few yrs and didn’t pay 6% tax… he’s doing something wrong or not understanding it.

[Kristina]

I’ve prepared them myself (usually with the aid of a tax program) all my life. Now it’s TurboTax, as a couple decades ago they bought out and eliminated the one truly excellent program that essentially explained the tax code to you as you entered your data.

No one cares more about your money than you do, and I found as I go through the process of preparing the taxes sometimes I remembers other receipts that might help reduce the taxes.

Also, I learn about potential deductions and credits that I might want to manage my finances to to take in future years.

[Author]

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