How is my taxable part of my IRA distribution calculated?
For most people, the full amount of the IRA distribution shown in Form 1099-R, Box 1 is taxable income. Be sure to check the IRA/SEP/SIMPLE box next to Box 7 so the distribution is treated as an IRA distribution.
However, if you have ever made any traditional IRA contributions that weren't deductible, then you have basis in your IRA account and the taxable amount of the IRA distribution will be calculated on Form 8606 and included with your tax return. Most people don't have basis in their traditional IRA account because they were able to deduct the IRA contributions made in prior years. If you don't have any basis in your IRA account, then the full amount of the IRA distribution is taxable income.
If you have basis in your IRA account, go to the Prior Year IRA Contributions screen right after the Form 1099-R screens. Answer Yes to the question that asks if you ever had a nondeductible traditional IRA contribution on any prior year tax returns. You'll then go to the Traditional IRA / SEP / SIMPLE Basis and Value screen where you enter the basis and value amounts of your IRA account that are used on Form 8606 to calculate the taxable amount of your IRA distribution.
What if I donated my distribution?
However, if you have ever made any traditional IRA contributions that weren't deductible, then you have basis in your IRA account and the taxable amount of the IRA distribution will be calculated on Form 8606 and included with your tax return. Most people don't have basis in their traditional IRA account because they were able to deduct the IRA contributions made in prior years. If you don't have any basis in your IRA account, then the full amount of the IRA distribution is taxable income.
If you have basis in your IRA account, go to the Prior Year IRA Contributions screen right after the Form 1099-R screens. Answer Yes to the question that asks if you ever had a nondeductible traditional IRA contribution on any prior year tax returns. You'll then go to the Traditional IRA / SEP / SIMPLE Basis and Value screen where you enter the basis and value amounts of your IRA account that are used on Form 8606 to calculate the taxable amount of your IRA distribution.
What if I donated my distribution?
