Calculating an IRD Deduction in 5 Easy Steps

IRD DeductionWhat is an IRD (Income in Respect of a Decedent) deduction?
An IRD deduction is a way of offsetting the impact of double taxation (federal estate tax and income tax) on certain inherited assets. It’s an income tax deduction for the beneficiary (miscellaneous itemized deduction, not subject to limitations).

When should you look for an IRD deduction?
When an individual receives a 1099-R for a distribution that has code 4 (the death code) in Box 7. Don’t expect the CPA to pick up on this. In the tax time crunch it is easily overlooked.

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Calculating the Pro-Rata Rule in 5 Easy Steps

What is the pro-rata rule?

Calculating the Pro-Rata Rule The pro-rata rule is the formula used to determine how much of a distribution is taxable when the account owner holds both after-tax and pre-tax dollars in their IRA(s). For the purposes of the pro-rata rule, the IRS looks at all your SEP, SIMPLE, and Traditional IRAs as if they were one. Even if you have been making after-tax contributions to a separate account for years, and there have been no earnings, you cannot isolate your after-tax amounts and must take your other IRAs into consideration.

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