When it comes to filing the Form 5498, issuers and trustees of certain accounts must report information to the IRS with Copy A, their recipients using Copy B, and keep Copy C on record for their institution.
A simple mistake can become a headache when filing this form. These are the most common mistakes that the IRS encounters when it comes to the Form 5498.
Since today is the deadline, you must begin tackling your reporting responsibilities.
What are the Consequences of Errors on Form 5498?
Errors on this form can have a larger impact than you might expect. The recipients who receive the Form 5498 depend on this information when they file their next tax return. If the trustee or issuer of their IRA Account provides incorrect information, the recipient could potentially claim incorrect deductions on their income tax return.
The best way to avoid the headache of amending this form is to avoid these mistakes in the first place.
Reporting Contributions for the Wrong Tax Year
This incorrect information will become an issue for the owner of your account and eventually it will lead them to report incorrect information on their income tax return.
Failure to Report the contribution as a conversion from a traditional IRA to a Roth IRA
Converting a traditional IRA to a ROTH IRA is a choice that the owner of the IRA account may choose to make. Both of these accounts are taxed differently, therefore this information must be properly documented.
Issuing Duplicate Forms
This may not sound like much of a mistake, but this too can become a headache for the owner of the account. When the trustee or issuer of the account distributes duplicate Forms 5498, the account holder can easily become confused as to which is the most recent and contains accurate information.
If the trustee sends the account holder a corrected Form 5498, it is always very important to check the box indicating that this is a “corrected” form.
Failing to Provide or Providing Incorrect RMD Information
Account holders of any IRA account, except a ROTH IRA, must begin to withdraw funds at some point. This withdrawal is the required minimum distribution. While account holders can withdraw more than this amount, they must withdraw at least the minimum distribution annually.
The IRS requires that account holders must report this distribution as income on their taxes. Without this information, they are unable to provide an accurate income tax return to the IRS.
IRA account holders that fail to take the required minimum distribution or any distribution at all in a given tax year may be subject to an excise tax in the amount of up to 50% of the distribution not taken. The information on Form 5498 is important to account holders and if reported inaccurately could result in them paying unnecessary taxes to the IRS.
Prevent Errors with TaxBandits
Most of these mistakes are extremely easy to avoid by just double checking your returns before transmittal. With TaxBandits, our e-filing process is built to prevent clerical errors that can often be overlooked during paper filing.
Not only do we offer opportunities throughout the filing process for users to review their forms, but we allow multiple users to securely review forms before final transmittal.
Our Muti-user Access allows your team to review the forms before IRS transmission as well as your clients. Enabling all of the necessary parties to review Forms 5498 securely, is just another way that our software is designed to promote accurate e-filing.