The IRS Deductions Blog

Archive for December, 2008

The 401k early withdrawal penalty
If you withdraw money from your 401k retirement plan before your reach the age of 59 and 1/2 years, you will have to pay a penalty on the taxable amount, which is known as 401k early withdrawal penalty. You will also have to pay income tax on the “early withdrawal” amount from your 401k. To calculate your 401k early withdrawal penalty, you need to understand two components of early withdrawal. The first one is how to calculate the federal and state tax that will be come due. The second is the tax penalty on early withdrawal, included in most plans. Below you will find the method for calculating your 401k penalty.

Step1 – Federal Tax Due: Determine what federal tax rate you are paying. Once you take the money out of the 401k it is considered income, as the withdrawal is from money that is pre-tax, and must be taxed. The federal income tax rate runs from roughly 15 percent to 35 percent for the majority of Americans. To find your tax bracket, check your previous tax returns and also make sure that your withdrawal does not propel you into a new tax bracket. For example, if you take out $30,000 from your plan, you will have to pay $6,000 as a penalty if your tax rate is 20%, assuming that the distribution is all income.

Step2 – State Tax Due: In this step, you will have to determine the state income tax bill on the 401k withdrawal. Check the state income tax you paid the previous year, as this amount of money should be accounted for as well. From the example above, if you state income tax rate is 5%; you will pay $1,500 to the state on the income of $30,000.

Step3 – Early Withdrawal Penalty: Add 10 % to the amount of the withdrawal you are making to get your final penalty. IRS rules generally states that you are charged 10% as an early withdrawal penalty, unless you qualify for some exception. This amount will be in addition to the taxes mentioned above. For instance, if you are taking $30,000 and are in a 20 percent tax bracket in a state with 5 percent income tax, your $30,000 withdrawal will net you less than $20,000. You lose $3000 for the penalty, $6000 for the federal income tax and $1500 for the state income tax.

Determine whether you qualify for an exemption from the penalty, as in certain instances, you can access your money early without paying the taxes.

Potential exceptions to early 401k withdrawal penalties

Potential exceptions to early withdrawal penalties from a Traditional IRA

The 401k early withdrawal should be seen as a last resort. The best option to save you from 401k withdrawal penalty is to inquire about the possibility of obtaining a 401k loan; such loans are not subject to tax and penalties. The good news is that you will not have to pay 401k early withdrawal penalties if you withdraw money when you leave your company, the same year you reach the age of 55 years or greater.

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Obama urges Dems to pass health care overhaul

WASHINGTON (AP) — Casting health care overhaul as a legacy for the American people and failure as politically unthinkable, President Barack Obama on Sunday rallied Senate Democrats to deliver on their party’s half-century quest to expand the social safety net by providing access for all.

Federal Income Tax Medical Expense Deductions 2009, 2010

Question: Refinanced Mortgage and paid down some prior loan – what’s deductible?

I just refinanced. No Points, no PMI, just some typical fees, prepaid interest. But as a part of this refi, I had to pay down some of my prior loan balance down to the appropriate level so that my new mortgage didn’t exceed 80% of the assessed value. At closing, this amount was part of my closing costs, went to the title agent, who pays off my previous bank. My question – the title agent at closing said that the entire amount say $20K that I paid down my previous mortage by via closing is tax deductible as a cost of my new mortgage. And if I had paid the previous bank down directly prior to closing, it wouldn’t have been deductible. Is this deductible? I can’t see how it is. But she proceeded to swear it was, citing her H&R Block day job to bolster her credibility. Let me know what you think. Thanks. Brian

Answer: If you are paying down the mortgage it is not deductible. The mortgage interest would be. Most closing costs add to the basis of your home. I do not trust what realtors say.

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Paw Prints

Females: Cockapoo, cream, 14 weeks; Lab mix, black, 9 months; beagle, tri-color, 3 years; terrier mix, black/white, 10 years. Males: Terrier mix, black/white, 14 weeks; boxer mix, black/white, 13 weeks; Jack Russell terrier, black/white, 7 months; husky mix, black/tan, 18 months.

QuickBooks – Return Deposited Items and NSF Checks

Question: What charity will pick up appliances (some needing repair), and provide a tax-deductible receipt?

[ Looking for Atlanta, GA charity. ]

All items are 9½ years old.

1. Maytag Neptune Front-Loader Washer (White) – Needs a Circuit Board
2. Maytag Neptune Gas Dryer (White) – Works Perfectly
3. Kenmore Upright Freezer (Black) – Needs a Condenser

These were all very expensive appliances, and as you see, two of them need repairs. However, if the charity has the resources or volunteers to repair the items, the value received by the charity is considerable.

Please providethe following:

1. Name of Charity
2. Web Site Address
3. Telephone Number
4. Days/Hours of Operation

Thank you.

Answer: i would check in your area for the local salvation army. i am sure that they could help you out

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Rescue mission begins for Fullmers

The holidays are over, but the real fun will begin Monday night.

Volunteer Abroad Zambia Orphanage / Child Care Assistance Programs Missions

There are two most important things that you need to remember about Motor Vehicle Accident Insurance in Ontario. The first is: remember the basic rules of what to do if you got in an accident (the most important don’t take any fault and gather as much evidence as possible). The second: get a good lawyer experienced not just in motor vehicle accidents and insurance, but also with experience of such cases in Ontario. Also a big percentage of people pay no attention to the details of their insurance and that can leave to unsuccessful trials. A good lawyer will help you even before the accidents, so consider a consultation and some help when you are purchasing an insurance.

At the moment the automobile insurance regime in Ontario is governed by a combination of regulated accident benefits and negligence or tort law. Standard accident benefits in Ontario include medical and rehabilitation expenses, attendant care, housekeeping expenses and income replacement benefits. There are also optional benefits that can be purchased for extra money and provide enhanced benefits if the need arises.

Also the provincial government in Ontario has attempted to permit the so called no-fault benefits and accident benefits. When the injured persons to receive some compensation for their economic losses regardless of their fault in the incident. These types of compensation are governed by the Insurance Act and are available under most automobile insurance policies in Ontario. After the accident an injured person in Ontario must fill the Application for Accident Benefits and submit it to the insurance company as soon as possible.

Depending of the fault one of the parties can sue another for compensation, also called as commencing a “tort action”. The subject of the suing can be the non-pecuniary damages (pain and suffering) and pecuniary damages (economic losses, medical bills, etc.).  In case of pecuniary damages the person must prove that he or she had sustained “a permanent serious impairment of an important physical, mental or psychological function” or “permanent serious disfigurement”, best proven by a doctor. As for the pecuniary damages the Insurance Act in Ontario sets that injured person is entitled to 80% of their net after-tax income loss up to the date of trial, and 100% of their gross future income loss following trial. If the person is able to return to work the post-collision earnings will be deducted from his or her wage loss claim.

In case of all the pecuniary damages documentation is very important: medical bills, repair bills, etc. are vital for receiving compensation. If the damage was caused by and unidentified, uninsured or underinsured motorist, the damages will be covered through the standard provisions in their own policy. In Ontario the Family Law Act allows spouses and close family members also have the right to sue for losses sustained as a result of the accident. For these cases like for the other non-pecuniary cases a deductible is applied to such awards, and the amount of deductible depends on the date of the accident.

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Urgent action need to keep province’s costs in check

To bring escalating health care spending under control, the Ontario government should scale back its prescription drug coverage for high-income seniors and move doctors away from the fee-for-service compensation model, a new TD Economics special report recommends.

Your health must be the first priority over your finances — however as it does, the results could at times be devastating. According to the study of Harvard University, medical bills reasoned completely half of all bankruptcy filings. Moreover all three-quarters of those bankruptcy filers had medical insurance, in any case as they first got sick. Thanks to the high charges of insurance, laws which permits insurers to drop the sick and the incapable of number of critically ill citizens to ongoing their health insurance throughout work, the study confirm that as many as 1.5 -2 million Americans can declare medical bankruptcy each year just for the reason of a serious illness.

Medical debt is similar to unsecured debt that means there is no guarantee available for the creditors to take back. However without filing medical bankruptcy or other safety, medical debt could be tied to the collateral you do own. After some years of due bills of hospital or insurance company could be able to garnish your earnings and claim part of your equity in a home, business or additional costly assets.

If you’re feeling overwhelmed because of medical debt, in that case bankruptcy lawyer could help you. If you recognize that is not possible for you to pay off your medical bills, but have to keep considering the same doctors, an experienced bankruptcy attorney could help you in setting up your finances. Moreover in prioritize expenses to make sure that you could see the doctors you require to and file a Chapter 7 bankruptcy down the line. In case you’re debt are onetime expenses then an attorney could help you in negotiating with your provider for setting up a more sensible payment plan. And a bankruptcy law attorney can also shield you from irritating creditors as you’re undergoing treatments, permitting you to concentrate on what matters mainly getting better.

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December 29, 2009

Insurers constantly caution seniors that their Medicare Advantage perks such as hearing aids, dental payments and even gym memberships will fizzle if Democrats get their way and cut government subsidies for them.

MeltDown #489 EMERGENCY ECONOMIC STABILIZATION