Retirement distribution – Form 1099-R
Form 1099-R reflects $10,000 as distribution in boxes 1 and 2a. However client claims that not all of it was ever deducted on the business returns. They claim that $$7,000 was not ever deducted so they claim the taxable portion should only be $3,000. Is this the correct treatment? Should the business return be amended to get the $7,000 deduction there or is this a corrective shortcut?
Permalink Submitted by Alan - IRA critic on Wed, 2021-10-13 01:52
If a non deductible TIRA contribution was made, Form 8606 was needed to document that. All 1099R form reporting distributions are required to show the full amount as taxable, however the actual taxable amount is calculated on Form 8606 and that figure overrides the 1099R. Are you referring to Form 1040 as a business return and was this a SEP contribution?
Permalink Submitted by Marina Ferrone on Wed, 2021-10-13 14:18
The original contributions were made on a business return – form 1120S. It was a 401(K) plan. But the $7K was never deducted.
Permalink Submitted by Alan - IRA critic on Wed, 2021-10-13 15:25
This could be a tax reporting error. The 1120S should only report profit sharing contributions (employer contributions made by the S Corp and these must be pre tax. The employee elective deferrals are shown on the W-2 in Box 12 and these are not reflected in Box 1 wages. It is possible that the person does not understand the tax forms filed or there could have been an error made by the tax preparer.