Form 8606 - Tax form - IRS - USA 

This form is used to report a taxable distribution from an IRA and also ff a taxpayer is in a situation where he can no longer deduct his IRA contributions, and they are reduced or eliminated, in this situation however he can still make contributions of $5,5000 ($6,500 if 50 or older). The interest earned on the nondeductible portion is tax-deferred until it is taken out or withdrawn from the account. The nondeductible contributions must be reported on Form 8606. The form 8606 must still be filed even if ff the taxpayer makes a nondeductable contribution in a year when they do not meet the threshold for filing a tax return, 

When making a contribution to an IRA, the taxpayer will either be eligible for a full deduction, partial deduction or no deduction at all. If the taxpayer does not recieve a full deduction, then the non-deductible portion of the contribution will become his basis. The non deductible amount along with the basis from prior years is then reported on Form 8606, Nondeductible IRAS.

When the basis is determined, the form 8606 will need to be filed every year to keep track of that basis. This must be done even in the years the contribution is fully deductible. The basis must be kept track of because once the taxpayer begins getting distributions from the account, part of distribution wil be non-taxable because it is the return of his basis. 

Therefore form 8606 must be used to keep track of deductible and non deductible contributions and the basis of the taxpayers IRAS. Taxpayers who make nondeductible contributions must file Form 8606 with their tax returns. Form 8606 is also used to rport taxable distributions from an IRA.