IRA

[MGC94]

2019 $7,000 IRA contribution

2020 $7,000 IRA contribution

2021 no IRA contribution. IRA worksheet is saying line 7 excess traditional IRA put $7,000  

birth year of client 1958 

[MGC94]

Goes from owing $16,000 to $14,000 

[TaxGuyBill]

Are you working on the 2022 return, and entered $7000 of IRA contributions?

Do they have $7000 of "taxable compensation", such as W-2s or self employment profit?

Were any prior years "excess contributions"?

[MGC94]

I am doing 2021. That line is coming up red and telling me to put $7,000 

[sjrcpa]

What line?

Can you answer Bill's questions?

I can only think you've made an input error. If there's no IRA contribution for 2021, why did you enter one? What do the prior years have to do with anything?

You have a lot of room to provide an explanation with complete sentences.

[IRonMaN]

This seems to be a little like playing an online form of Jeopardy 😉

[MGC94]

Are you working on the 2022 return, and entered $7000 of IRA contributions?

I am working on the 2021 tax return. It generated it on its on. IRA cont worksheet. Line 7 excess traditional IRA contribution credit. It is red when I put 0 it says to put $7,000. 

Do they have $7000 of "taxable compensation", such as W-2s or self employment profit?

He just brought me 2019, 2020, and 2021. 

2019 total income $61,837. No w2. Rental income, investment income. $7,000 IRA contribution 

2020 total income $59,554. Yes a w2 over $7,000. Rental income, investment income. $7,000 IRA con. 

2021 total income $153,413. Yes a w2 over $7,000. Rental income, investment income. NO IRA contribution that year. 

Were any prior years "excess contributions"?

I can only guess maybe 2019 is "excess" and transferred to 2020 which already had IRA so transferred to 2021? 

[MGC94]

Are you working on the 2022 return, and entered $7000 of IRA contributions?

I am working on the 2021 tax return. It generated it on its on. IRA cont worksheet. Line 7 excess traditional IRA contribution credit. It is red when I put 0 it says to put $7,000. 

Do they have $7000 of "taxable compensation", such as W-2s or self employment profit?

He just brought me 2019, 2020, and 2021. 

2019 total income $61,837. No w2. Rental income, investment income. $7,000 IRA contribution 

2020 total income $59,554. Yes a w2 over $7,000. Rental income, investment income. $7,000 IRA con. 

2021 total income $153,413. Yes a w2 over $7,000. Rental income, investment income. NO IRA contribution that year. 

Were any prior years "excess contributions"?

I can only guess maybe 2019 is "excess" and transferred to 2020 which already had IRA so transferred to 2021? 

[MGC94]

Just trying my best 

[sjrcpa]

"I can only guess maybe 2019 is "excess" and transferred to 2020 which already had IRA so transferred to 2021? "  Bingo.

EDIT: The additional info you provided was helpful.

[TaxGuyBill]

The 2019 return appears to not qualify for an IRA contribution, so there were "excess contributions" for 2019 and 2020.  Each should show a $420 penalty for that excess.

*IF* I remember correctly, the 2019 return should NOT have shown the $7000 IRA deduction because it was invalid.  But because there was no contribution in 2021 but there was "taxable compensation", that corrected it in 2021.

Does the 2021 return show an IRA deduction on Schedule 1?  I THINK that is what it is supposed to do.  It is effectively using the 2019 contribution in 2021 because the excess contribution was resolved in 2021.  So that is why the amount owed decreases.

[qbteachmt]

With no earned income, there is no eligibility for this type of contribution. As noted, if it also was deducted, that would be amended.

Taking it one year at a time, in sequence:

Why was a contribution made for 2019? Perhaps they are overlooking something that qualifies.

And was it made in 2019 or, more typically, a tax person tells them to make this by April 2020 (for a year, but in the next year).  If the same thing happened for 2020, paid in 2021, then you could attribute the contribution made in April 2020 really is for 2020 tax year. Continuing, the contribution in April 2021 would be for 2021 tax year. And now you are in 2022.

Even if it was deposited in 2019, you can still attribute it to the next year (paying penalty on the excess). Then, an amount deposited in 2020 would be excess (as a double deposit) and attributed to the next year. Then, there is the chance to "use it" as long as there is the eligibility.

https://smartasset.com/retirement/how-to-handle-excess-ira-contributions