What Is the IRA Information Worksheet?

The U.S. government, in fact, the United States as a whole, has an interest in its citizens properly stewarding their resources so that they have adequate financial resources when their productive years wane. One way the government advances this goal is to exempt contributions to retirement funds from the household income that it taxes annually.

Of course, the burden for determining the deductible amount falls on taxpayers. Nevertheless, the Internal Revenue Service (IRS) publishes a worksheet that helps tax filers correctly calculate the deduction. Publication 590-A assists individual retirement account holders (IRA) to arrive at the accurate figure for filing purposes.

What Is an IRA Worksheet?

The IRS includes myriad worksheets among its informative publications. Relating to qualifying issues like child tax credits, self-employment, home offices, capital gains, health coverage, pandemic credits, Social Security and many others, these tools walk tax filers through often complex formulations.

Use of these resources, together with requested supporting documents makes taxpayer representations clearer to IRS analysts and can help to make an audit less likely. Filled out completely, these worksheets are appended to the tax filing (IRS Form 1040) for the benefit of the IRS to make sure the taxpayers' representations conform with government rules.

Do You Have to Report Your IRA on Your Tax Return?

The question of whether or not IRA monies are reported on a tax return largely depends on what sort of IRA the taxpayer has. In a traditional IRA, contributions are tax-deductible, but withdrawals are included in taxable income. Conversely, a Roth IRA allows no contribution deductions yet excludes withdrawals from taxable income.

Roth IRAs therefore need not show on an IRS 1040 or other return document since contributions are not deductible and income drawn from them is not taxable. By contrast, the traditional IRA products must be referenced because the deposits do qualify as deductions while removed funds are subject to taxation. So, with the traditional IRA, you must declare distributions as income and it only makes sense to claim contributions as deductions.

Following Publication 590-A Instructions

The IRA information worksheet instructions contained in Publication 590-A begin with a definition of compensation. This is because only certain revenue sources are allowed for IRA contributions. The instructions explicitly prohibit, with few exceptions, investment income, instead counting salaries, wages, stipends, commissions and other revenue gained through some form of work.

In addition, the instructions place parameters on contribution amounts as well as frequency and timing of IRA deposits. They further elaborate on the eligibility traits of deductible contributions.

Worksheets included with this publication help taxpayers to figure out modified adjusted gross income (AGI) because of limits on the same. They also demonstrate how to figure a reduced deduction for those who are simultaneously covered under employer retirement plans.

Other issues that worksheets address include recharacterizing contributions, i.e. those transferred to a second IRA, and what amount can be deducted. Excess contributions from prior years must also be accounted for on a federal carryover worksheet. These are but a few of the worksheets that comprise Publication 590-A.

What Is the Significance for Your Return?

IRA deductible contributions are entered into Schedule 1 of the IRS Form 1040. Line 19 of Schedule 1 is where the IRA deduction is entered among other deductions for health savings accounts, student loan interest and alimony paid, for example. The final figure is placed on line 10a of Form 1040.

There could be many, many steps from the first worksheet to line 10a. For all of the markers offered by the IRA information worksheets in Publication 590-A, determining an IRA deduction as IRS reviewers determine it may require some help from a tax accountant or preparer.