ILLMAS Posted February 4, 2021 Report Share Posted February 4, 2021 Let's say a TP would benefit from making an IRA contribution for 2020, however down the road, they don't know if they will have the money to make the contribution by the filing deadline. Would any of these two options work: A. File now including the IRA contribution and amend to remove the IRA contribution if they don't have the money by the deadline. B. File now without the IRA contribution, amend before deadline to now include an IRA contribution (they came up with the money). Thanks Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 5, 2021 Report Share Posted February 5, 2021 C. Complete their return now to learn how much they'll owe without the IRA contribution (worst case scenario) and hold their return. Their motivation may change with that information! Then, give them a deadline to return with their decision, say 1 April or so, after they've made or not made a contribution. 2 Quote Link to comment Share on other sites More sharing options...
Pacun Posted February 5, 2021 Report Share Posted February 5, 2021 ILLMAS it depends. Let's say that someone will get 4K refund without any IRA contribution and if they deposit $6K in their IRA, they will save $2K in taxes. I would tell them that they don't need any money to fund their IRA since they would get $6K refund which is the amount they need for the IRA. In this case, I will use option A. If tax payer owes $10K in taxes but if they invest $6K in an IRA, they will owe only 8K, I will use option B because chances are that they will not have $8K to pay their liability plus $6K to fund their IRA. 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 5, 2021 Report Share Posted February 5, 2021 For Pacun's scenario to use option A, you can make use of Form 8888. Then you only have to amend if the refund is less than the IRA contribution reported on the return. Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted February 5, 2021 Author Report Share Posted February 5, 2021 Fictional TP owes 15K, making an IRA contribution right now would save them around 2K, TP is buying a house after paying for the taxes they are barely going to have for the down payment. They would need to shell out 5-8K to get the tax savings, so would option B work? I looked at the rules and I see nothing on amending after the fact, just as long as the IRA payment is done before the deadline. I have never encountered a scenario like this before and wanted to get people thoughts. Fictional TP is having a hard time getting financed because they have been SE for a few years and bank loves W-2s customers Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 5, 2021 Report Share Posted February 5, 2021 If you have time for amendments 15 April, I'll hire you to prepare returns for me! Wait to file until client has made a decision. Give client a DRAFT return to give to bank. If he owes 15K and can't pay it now, how will he buy a house and pay closing costs, homeowner's insurance, repairs, moving expenses, etc. Maybe he should invest in his IRA instead of a house. Or, maybe he should invest in a house instead of an IRA. But with a 15K tax bill, can he afford both? 1 Quote Link to comment Share on other sites More sharing options...
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