How to Document Traditional IRA Contributions for Taxes
Original post by Wilhelm Schnotz of Demand Media
Sure, you make contributions to your traditional IRA in order to meet the goals of your retirement plan and to help maintain your standard of living during your golden years, but you could do that with any investment product on the market. It’s the tax advantage IRAs provide that makes them so attractive to many investors: Your contributions to a qualified IRA are made on a pretax basis, lowering your taxable income, and you don’t need to itemize deductions to receive the tax break. To receive those tax benefits, you must properly claim your contributions when you file your income taxes.
Check your age against the Internal Revenue Service’s contribution guidelines. If you’re older than 70 1/2, you can’t make any tax-deductible contributions to your IRA.
Locate the IRA Deduction Worksheet in the Form 1040 instruction packet. While you should complete this form to determine the amount of IRA contributions you may claim and should keep it with your records, as a worksheet it doesn’t need to be submitted with your return.
Answer questions on Lines 1a and 1b about your and your spouse’s retirement plans. If you meet the requirements explained on the worksheet, skip to Step 7.
Enter the amounts on Lines 2a and 2b that apply to your filing status and transfer information from Form 1040, Line 22 – your total annual income – to Line 3 of the worksheet. If you made any adjustments to your income on Lines 23 through 31a on your 1040, enter those in Line 4 of the worksheet. These steps determine your income and eligibility for contributions.
Subtract Line 3 from Line 4 and enter the total into Lines 5a and 5b as needed. If the amount on lines 5a and 5b exceeds the amount on Line 2, you earned too much to claim an IRA contribution deduction. If the amount on Lines 5a and 5b is smaller than that on Line 2, continue with the worksheet.
Follow instructions on Lines 6 through 7 to determine the basis for the deductible amount using the guidelines the IRS issues, adjusting your contribution limits by your age as well as your filing status.
Total your and your spouse’s wages, tips and self-employment earnings on Lines 8, 9 and 10.
Enter the total amount of contributions you made during the year on Line 11a and 11b. Select the smallest amount of Lines 7, 10 and 11, and enter it on Line 12. This is the amount of deduction you may claim. Transfer this amount to Line 32 of your Form 1040.
Tips & Warnings
- You can’t claim the IRA deduction if you file taxes with a Form 1040EZ.
- You may also qualify for a tax credit for retirement savings. Complete Form 8880 to determine if you qualify for the credit, and submit it with your 1040 to claim the credit.
- IRS.gov: Form 1040 Instructions
- IRS.gov: Publication 17 - Individual Retirement Arrangements
- Kiplinger; Fund an IRA, Cut Your Taxes; Mary Beth Franklin; February 2011
About the Author
Wilhelm Schnotz has worked as a freelance writer since 1998, covering arts and entertainment, culture and financial stories for a variety of consumer publications. His work has appeared in dozens of print titles, including "TV Guide" and "The Dallas Observer." Schnotz holds a Bachelor of Arts in journalism from Colorado State University.
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