How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Merlo Your Own Question
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
Type Your Tax Question Here...
Merlo is online now
A new question is answered every 9 seconds

Im asking this question for a friend of mine. He is self-employed

This answer was rated:

I’m asking this question for a friend of mine. He is self-employed real-estate investor. At one point, he had over 30 houses in Nevada and California, and after the collapse of the housing market, he’s been short selling these properties. Last year, his net loss was over $3M from the short sales, and he expects another $2M of loss for this year. He recently took out $40K from IRA account to pay for some bills. He is wondering if he needs to pay any taxes on the $40K, since he is in zero tax bracket. How about the 10% penalty? Does he need to pay? Thank you for your advice.



Any time that you take money out of your traditional IRA account, you must report that as taxable income on your return. If he has enough deductions from other sources, it may end up that he does not owe taxes on that $40,000 or on the entire amount, but the amount does need to be reported as part of his taxable income.


If he was under the age of 59-1/2 at the time the withdrawal was made, then he will owe an additional 10% early withdrawal penalty. That penalty is paid separately from regular income tax, and so no deductions apply to the penalty amount.


If this was helpful please press the Accept button. It is the only way we receive any credit for helping with these questions.


Thank youCustomer/p>



Merlo and 2 other Tax Specialists are ready to help you

Related Tax Questions