I owe $36,000 in income tax for a year during which I earned NO income

you're doing something wrong. paying your full amount of taxes is for suckers.

the tax code is so full of loop holes you could drive a 18 wheeler thru it, ask any rich person.

i guarantee you, any one familiar with the tax code would probably be getting a check instead of writing one.

it's done on purpose, putting the onus on you.

Simple. You took money out of your 401K early. This is considered income.

So while you didn't earn income during that year, you created income by pulling previously untaxed money out of retirement funds.

Therefore, because the taxes on that money were only deffered if you saved it through to retirement, you now need to pay taxes on it.

$36K in taxes? You must have pulled a pretty substantial amount out of your 401k.

reply to post by timidgal


forgive me if anything I say is covered but I'm too lazy to read the entire post.

1. part of the money owed, I presume, is the early withdrawal penalty on the 401(k) distribution. you might be able to get that waived via financial/medical hardship (use the disabled card).
2. you make it sound like you had no income and, yet, you're being taxed. You received taxable disability and you took money out of your pension so you did, in fact, have income.
3. make sure your tax preparer optimized any and all education credits. tuition can result in a direcr reduction of your income or a direct credit against the tax. your preparer should have run both scenarios to ensure you were getting the best possible treatment.


with regards to the tax bill, you can set up payment plans with the IRS as well as try and negotiate a one time settlement of the taxes, in full, for much less than you owe. To do the latter, you need to show them that you have absolutely no means of paying them which would, obviously, depend on your situation with work, disabiltiy, monthly cost of living and the available assets. Believe it or not, folks who attempt to deal with their debt to the IRS are treated rather well and the IRS is well aware of the crappy economy and the hardships many people are facing.

Originally posted by randomname
you're doing something wrong. paying your full amount of taxes is for suckers.

the tax code is so full of loop holes you could drive a 18 wheeler thru it, ask any rich person.

i guarantee you, any one familiar with the tax code would probably be getting a check instead of writing one.

and I guarantee you are wrong there. Yes, there are folks who make a lot of money and pay far less in taxes than you might expect but those are people who's income is structured in a manner to provide the best the tax code has to offer.

reply to post by timidgal


You need to find a good accountant to work out all your financials, it will be money well spent

One of the waivers for early withdrawal penalties from withdrawaing money out of a 401K before age 59 and 1/2 is for medical expenses. You need to hire a good accountant.

In addition, was your taxable income 35,000 or tax owed 35,000? If it was the latter, WOW! You pulled a buttload of money out of a 401K. Like I said, if most of it went for medical expenses, you should be able to get around the 10% penalty, but you'll still have to pay personal income tax on the money because when you put the money into your 401K, it was tax deducted and no taxes were paid.

I'm sorry you went through this, but the taxman will always comeith.

reply to post by timidgal


Actually.
You should only pay 15% Federal tax.

See the 2011 US Tax brackets.
And 2012 US Tax brackets..

I don't know your local tax though.

Are you sure you dont owe taxes ON the $36,000 you recieved? Thats seems more like it.

And you did ay it WAS income AND taxable at that.(???)

You made 2x as much money as i make in a year and didnt work.... lucky!!!

Sucks about the taxes, but only having to pay less than $40,000 for a year long vacation sounds pretty fair. We got plenty of trailer lots open at the park ...come on down.

Funny how this person keeps avoiding the fact that she is paying these taxes on the early withdrawal from her 401k, even though its been pointed out several times.

I feel bad for your situation. Please correct me if I'm wrong but didn't our forefathers leave England because of unfair taxation?! It's time to remind "our government" we're beyond that same problem again.

Your kids can borrow for school

You can't borrow for your retirement

For goodness sake get a good financial adviser

Get out before that debt becomes > $50,000!
...
Just kidding! Sadly, I have nothing positive to add (besides lame IRS humor), but you have my sympathies as a fellow inmate. I wrote my freedom cheque for $2,300 last week.

--Av

reply to post by timidgal


Sorry, I don't understand.
How can you owe more than you earned in tax?
That would be over 100% tax rate!!!!

Originally posted by hawkiye
They don't put you in jail for not paying they can't they drum up something else like filing false returns or failure to file. But they will take any assets you own like house car etc. Why don't you call one of those commercials where they say if you owe more then $10,000 in taxes they can settle with the IRS for pennies on the dollar?

The IRS is organized crime! Maybe you thought so called tax protesters were crazy before? If you did you know now they are right!

edit on 18-4-2012 by hawkiye because: (no reason given)

. Actually yes they do. Look up Wesley Snipes.

This happened to me but in another country, no children but here is what occurred.
Worked many many years for the same company, I got sick big time and then went onto disability payments.
We just bought our first home a month before this, and it was very stressful.
Next thing you know my insurance company via my work company decided that it was a good idea to delay any payments for as long as possible.

After spending over a week here in our local hospital I was transferred to a specialty hospital for surgery which took another week before I was able to go home.

The insurance company would not pay me any money at all for over 7 months! When I finally felt there was nothing left to lose ( because there was nothing left to lose) I told them I was going to the press with all the facts.

A few weeks later they sent me a check for over 7 months worth of payments, the problem was it was one check and not a monthly check like I was due.

This screwed our taxes up so bad it was not funny, at the end of the year we received a tax bill for over 5K and we were still trying to hang on to our house here.

I do believe that they do this intentionally to stress people out and hopefully you die so there is no claim, I am not saying this in jest here, I really believe this.

Great Post and you get a S&F from a fellow sufferer of the money guys.

Regards, Iwinder

Sorry to hear about your situation, but if you take an early distribution from your 401k you get hit with a 20% tax if you don't lay it back in about 6 months.
Ther may even be even another 10% hit later.
Sorry to say, but you may have no recourse because of the fact you signed on the dotted line.

But I understand your anger and frustration, you helped out those in need for many years and now they won't return the favor.
That's why social should only be available to those who really really need the help, not the abusers of the system.
Until then, there wont be enough for you.

Early distribution of a 401k is considered income as money you put into these accounts is with pre-tax dollars. So, if you are not at the right age for withdrawal penalty free, then you will owe.

Consult a tax attorney and look to file an offer in compromise. You have extenuating circumstances that will hinder your ability to pay and often you can reduce your tax bill by up to 90%.

DON'T go to Tax Masters or any of these infomercial guys unless you thoroughly check them out. I'd stay with someone local.

reply to post by timidgal


Listen, I have a friend who is a former business owner. He got into some Tax trouble a few years ago in which he ended up owing close to $80,000 to The IRS. He negotiated with them and ended up paying only $15,000! This is a true story. I advise you to not throw away more money on an Attorney unless it is a one time settled fee for negotiation. You can also represent yourself if you're able. Start rehearsing your pity party. Good luck. As far as 401K income, I am not sure if that is negotiable. ~$heopleNation

Please, Please, be very careful about going to one of those TV tax attorneys. Some are worse than doing nothing. Patrick Cox has been under investigation by numerous agencies, for a long list of charges.
There are others who will collect a fee, then say there is nothing they can do. You can research local attorneys on the net. Reviews by past clients will give you an idea who to go with.