Video instructions and help with filling out and completing What Form 944 Pr Revenue

Instructions and Help about What Form 944 Pr Revenue

Hello and welcome to this episode of unvested shares in this video I will be showing you how to fill out form 80606 which is the IRS form that needs to be submitted when you do a backdoor Roth conversion so again when you do a backdoor Roth conversion which I will briefly run over again as a review you need to include form 80606 when filing your tax return and I'm going to show you how to fill that out in today's video so as a brief reminder a backdoor Roth conversion or back to a Roth IRA is a strategy that is often used by high earning individuals who cannot contribute outright to a Roth IRA because they make too much money stated quite simply in 2021 if you are a single filer and earn over 135 thousand dollars you can no longer contribute to a Roth IRA or if you are a joint filer and as a unit you earn over one hundred ninety nine thousand dollars you can not contribute to a Roth IRA so again the backdoor Roth conversion and the strategy there is you contribute up to fifty five hundred dollars in earned income if you're under the age of fifty to a non-deductible IRA and you then wait at least one period one I would say one statement period if not an entire year before then converting that non-deductible IRA into a Roth account and since you already paid your taxes before contributing to that non-deductible IRA you won't owe any additional taxes when you convert to a Roth so that is the high-level strategy of what a Roth conversion excuse me a backdoor Roth conversion is and you know a lot of times folks who are high earners will max out their 401k and then on the side they'll also be contributing up to the $5,500 amount if they're under 50 years old or sixty-five hundred dollars or not hundred dollar amount if they're over fifty years old just to accumulate some additional retirement funds but in a Roth vehicle which essentially means that will not be taxable ever again so once you have contributed into a non-qualified IRA you need to essentially claim your basis to the IRS so they don't tax you on the amount and so that's what this form is for and this form is also when we go into part two it talks about the Roth conversion and if there's any taxes owed because your account appreciates that will be highlighted there so if further ado let's go ahead and get started and for this example let's just assume that as a taxpayer in tax year 2021 as you can see let's assume that I contributed $5,500 in march to the non-deductible IRA and then let's assume that in december i am filling out this form just to make themes just to kind of be online with our assumptions here so we'll start with line 1 which is enter your non-deductible contributions to the traditional IRA and as we mentioned I'm going to assume I contributed $5,500 let's say in march okay let's assume then line 3 will flow through $5,500 and then if I did contribute anything after January first and before the tax closed year I could add that amount in here so again I'm assuming I contribute in March of 2021 even if I contribute in March 2021 it would still apply towards my tax year of 2021 I would just put that $5,500 amount down here in line 4 but again for this I'm not going to and so unlike Phi I'll add in the $5,500 which is subtract lying 4 from line 3 as you can see that's obviously $5,500 so line 6 7 & 8 it's important to stop here because you'll notice that has entered the value of all your traditional SEP and simple IRAs into line 6 this is important because this is where the pro rata rule comes into play and the pro rata rule essentially means that if you have any other traditional IRA SEP IRA or simple areas accounts you will you will have to pay taxes based off of a pro rata amount of your base is here plus how much funds you have in these other IRA accounts so that is less than ideal and that's not what we're going for here with the backdoor Roth conversion so it's highly recommended that before you do a back to our Roth conversion you move all of your other traditional step or SIMPLE IRA dollar mouths and you roll those into a 401k if you have them and it's not everyone can do it and so you may have to pit use a pro rata rule but ideally you want to roll all of those IRA SEPs and simples into a 401k so it's not applicable here and that whole $5,500 basis is applied to minimize your tax liability when you convert it into a Roth account so that's the pro rata rule we'd like to avoid that so in this case I'm assuming that all my traditional seven simple I raise I rolled those into my employer 401k or my solo 401k or whatever it may be okay and if you did have a pro rata well you'd as you can see you would add in your traditional step and supplier amounts here and then down at line ten you'll see there's a multiplier and that essentially multiplier which would then determine your pro rata rule of how much additional taxes you would owe on your basis here so we will flow down here into line thirteen since we don't have to deal with this which is essentially this is a non taxable portion of your distributions since this was all non deductible or post tax contribution to this IRA our non taxable portion of this distribution is the $5,500 that we contributed in.