AVOID MALPRACTICE! EXTEND DUE DATE OF RETURN IN SUBSEQUENT YEAR OF CON

[Guest DAVETAX]

To protect against a stock market decline between the original due date of the tax return and the due date including extensions it is important to advise a client of the benefit of extensions. Failure to do this could cause your client to pay more tax than necessary with no hope of recovery except from his tax preparer!

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DAVID SNYDER, CPA

[This message has been edited by DAVETAX (edited 03-10-99).]

[This message has been edited by DAVETAX (edited 03-10-99).]

[Kathy]

Please clarify what you are saying. I'm not sure I understand how a market decline in the year after a conversion would impact the tax consequences. If I converted in 1998 and then determine that I want to recharacterize after the end of the year but before my tax return due date (plus extensions) any subsequent conversion becomes a 1999 conversion. Are you suggesting that I may rather have a lower tax burden in 1999 than have the higher tax burden of the original conversion, even though I could spread that one over 4 years and eliminate that possibility if I recharacterize and reconvert in 1999?

[Guest DAVETAX]

EXAMPLE: Taxpayer coverts a regular IRA to a ROTH IRA 12/15/98 in the amount of $400,000. On 4/15/99 the porfolio value of the ROTH IRA is $425,000. On 8/01/99 the portfolio value of the ROTH IRA has declined to $275,000. If an extension had been filed the taxpayer could "recharacterize" (undo) his 1998 conversion by 8/15/99 and reconvert in 1999. This would reduce the total taxable income on a ROTH IRA conversion from $400,000 to $275,000.

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DAVID SNYDER, CPA

[This message has been edited by DAVETAX (edited 03-10-99).]

[This message has been edited by DAVETAX (edited 03-11-99).]

[Kathy]

Boy, won't we all be hating life if the market drops that much!!! The guy in your example will hate life even more if the market drop occurs the day after his extended due date!!!! Sometimes you just have to do what you think is right when you think it's right and don't look back.