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Mark D
Mark D, Enrolled Agent
Category: Tax
Satisfied Customers: 989
Experience:  MBA, EA, Specializing in Business and Individual Tax Returns and Issues
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I still havent filed my 2008 taxes because Im broke and think

Resolved Question:

I still haven't filed my 2008 taxes because I'm broke and think I will owe alot of money. Lost my job in 2008, was unemployed for 4 months, real estate market tanked and we were upside down on our house, ended up cleaning out my 401K to live on. Eventually lost the house.

Since I was/am insolvent, is there a way to not pay income tax on the 401k early distribution? I assume I can't get around the 10% early withdrawal penalty. Same question on credit card debt forgiven - taxed as income?
Submitted: 4 years ago.
Category: Tax
Expert:  Mark D replied 4 years ago.
Customer

Unfortunately, you will have to pay tax on the 401K distribution as well as the 10% penalty. However, you can file Form 982 with your tax return to exclude any cancellation of debt income to the extent you were insolvent. This means by properly filing Form 982, you would not pay taxes on the canceled debt. Please let me know if you have further questions.

Regards,

Mark D
Mark D, Enrolled Agent
Category: Tax
Satisfied Customers: 989
Experience: MBA, EA, Specializing in Business and Individual Tax Returns and Issues
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