professional tax software question
L1: professional tax software questionHello…I have a question about professional tax prep software. I have been getting the code 2 for my SEPP in past years, and have 3 more years to go on my plan. However, my custodian is not giving the code 2 anymore, thus I will be getting the code 1 . My question…does tax prep software detect that you are less than59.5 and automatically assess the penalty unlessthe preparer KNOWS to do the 5329? Or does the software alertthe preparerin some way that the 5329 is available if you are doing a SEPP? I know we are best served to be using preparers that are knowledgable on this , or go elsewhere…I am just curious about the software, and what if any automation it has on this. .2016-03-04 21:17, By: CarolM, IP: [184.108.40.206]
L2: professional tax software questionWouldn’t that really depend on which “tax preparation software” was being used by the tax professional?
Are you categorizing the likes of H&R Block, etc as tax professionals?2016-03-04 21:20, By: Gfw, IP: [220.127.116.11]
L3: professional tax software questionNo sir….I am referring to pros that have their own business. I guess it depends on who you use…is that what you are saying? I was justcurious if the 5329 is triggered automatically when the code 1 is put in by the preparer. Or at least if the code 1 would trigger further questions about the taxpayer…such are “Does taxpayer qualify for an exemption?” or similar.2016-03-04 21:47, By: CarolM, IP: [18.104.22.168]
L4: professional tax software questionProfessional software probably does not ask all the questions typical of the consumer software programs that lead the taxpayer by the hand. I would assume that the preparer needs to understand that you have an active 72t plan going and to add the 5329 with exception code 02, instead of just entering code 1. If the 5329 is not added, the program will trigger the 10% penalty. The solution is quite simple, just remind the preparer that you need a 5329 added to waive the penalty caused by the 1 code.
Every year fewer and fewer IRA custodians are providing the 72t plan exception code 2 because even if the distribution amount is the same as last year, they do not know how many other IRA accounts that they do not hold are included in the plan. I think Schwab was a custodian who provided the 2 code for years, but has now ceased using that code for 72t plans. Therefore, the 5329 is so commonplace now that it is no longer a red flag for the IRS.
But most preparers do not understand 72t plans, and if you are a follower of this site you probably know more about them than 95% of tax preparers. So do not assume how a preparer will enter your 1099R even if these forms had the 2 code in prior years. The 2 code is not a unique 72t plan code, but applies for other situations as well.2016-03-05 00:25, By: Alan S, IP: [22.214.171.124]