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Zip Taxes
Zip Taxes, Tax Preparer
Category: Tax
Satisfied Customers: 156
Experience:  CTEC Licensed / Mgmt Experience with H & R Block... Self Employed since 1986 Experienced in all Scheds
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I have been on unemployment for 1.5 years. I have no assets

Resolved Question:

I have been on unemployment for 1.5 years. I have no assets except for my IRA. I owe $19,000 to the IRS for 2010 tax year. I understand the I am obligated to pay the taxes by cashing out my IRA but was told I could avoid the 10% penalty if I waited for the IRS to levy my IRA. I'm afraid that the late fees and penalties would equal the 10% fee anyway if I wait for a levy.
Should I wait for a levy?
Is there any form of penalty waiver to cashing out an IRA when on unemployment and below the IRS's listed poverty level?
Submitted: 3 years ago.
Category: Tax
Expert:  Zip Taxes replied 3 years ago.

Zip Taxes :

Thank you having the trust to answer your question. When answered to your satisfaction be sure to hit ACCEPT. TIPS are welcomed / good deeds come back

Zip Taxes :

My strong recommendation would be to stay away from your Retirement Account

Zip Taxes :

Make an arrangement of monthly payments to the IRS

Zip Taxes :

That would be overall, less expensive then the loss of interest and gains on your Retirement

Zip Taxes :

IRS is correct, they will not accept any settlements but they will accept a waiver of penalties if you arrange a payment plan.

Zip Taxes :

Have you file your 2010 taxes yet?

Zip Taxes :

But paying your IRS bill is consider an emergency need but you will be taxed on your IRA if it's a regular IRA and a 7 as a distribution

Customer:

I have filed. I understand that no one thinks I should use retirement but I don't make enough in unemployment to make payments to the IRS. The retirement penalty is a one time 10% fee but the IRS charges 6% interest and .25% late fee each month. It would take me 10 years to pay off the $19,000 even if there was no interest or late fee. I would never be able to pay it off. I was also told by IRS employee that they would not accept a payment arrangement since I have the money available in my IRA.

Zip Taxes :

Have you tried to consult with a tax attorney? I just can't see how they would ask for your retirement when you have been unemployed for a long period of time. True you will get hit with a 10% penalty and again when you file taxes in 2011 because it will be considered an income. Sometimes if you talk to another IRS agent... you may get a different reply. I know I have negotiated for my clients. It's very difficult to try to get money back into retirement once it's gone.

Zip Taxes :

I would say, no to waiting for a Levy.

Zip Taxes :

Do you know how much time you have left on your unemployment?

Customer:

I have not consulted an attorney. I just got a 12 week extension on my unemployment and that may be my last extension.

Customer:

you said it would be considered an emergency. How do I go about avoiding the penalty? Is this addressed next year when I file my 2011 taxes?

Zip Taxes :

Ouch, well if you feel it's worth it to you to get the perverbial monkey off your back, then you have to take the hit one way or the other... Did you have a tax preparer do your taxes for 2010 or did you self prepare?

Customer:

I had a tax preparer but he just left me on my own to deal with the IRS. I just don't know where to go from here. I went to the IRS yesterday but was given little assistance outside of being told that I had to use my retirement to pay.

Zip Taxes :

You know what, I was re-reading your question again... I, myself would wait for the Levy because who knows what the future holds. It will take the IRS quite awhile to do it. You may find a job, or something will come your way that will help in the situation.

Zip Taxes :

As for the tax preparer, were they an individual or a company like H & R ?

Zip Taxes :

But there is no form to waive a penalty if you pull it out, but I think if they levy, you also won't receive a 1099 on the distribution as an income as well

Zip Taxes :

Whereas if you pull out, you will get hit with the 10% plus you will receive a 1099-R at the end of the year to claim as an income.

Customer:

In Summary: If I wait for a levy it will save me the 10% penalty and taxes on the $19,000 for next year? I will have to endure the stress but can save $ in the long run.... Do I contact the IRS to tell them I can't pay or do I wait to hear from them when they don't get a check with the income tax filed?

Zip Taxes :

Correct in your summary.

Zip Taxes :

and yes if it were me, I would wait for them to come to me. You will get letters and if I were you, make arrangements through the mail. Send 50.00 bucks

Zip Taxes :

My question is, did your preparer make an error?

Zip Taxes :

Maybe you should have your taxes "reviewed"

Zip Taxes :

H & R Block, I think still offers "second looks" with out a charge. I know I do

Zip Taxes :

Also, on my website I have a lot of links that may answer some of your questions

Zip Taxes :

www.ziptaxes.com

Zip Taxes :

You can click under the Financial Links as well.

Zip Taxes :

Now if there's an error with your taxes, and amendment can be filed to correct the matter.

Zip Taxes :

Have you created any "self employment?"

Zip Taxes :

Like a cleaning company or some type of service that you started in 2010?

Customer:

I did a short sale on an investment property. I received two 1099's for a substantial amount of $. I don't think there was an error as I was expecting to pay around $20,000. I used an individual in another state who has done my taxes in the past. I have not created any self employment. I expect I will have work in the near future but I will never make the kind of money I used to make. I will try to wait for IRS to contact me.

Zip Taxes :

I strongly recommend a second look at your taxes

Zip Taxes :

it's not adding up in my head as to the issue... if you short sale the home and it was owner occupied you should not be paying any taxes on it

Zip Taxes :

There's not State Income tax in Fl since I have quite a few clients in Fl

Zip Taxes :

You want a Sr. Tax preparer with 5 plus years experience with H & R... and I'm not pushing H & R but the people there don't get paid much, but they do have a sincerity in helping those who need help

Customer:

ok. I'll look into contacting someone. The property was not owner occupied. It was an investment. Should I see a tax attorney or a CPA? I just moved from CA to FL but I didn't owe tax to either state. It was all federal.

Zip Taxes :

Tax Attorney are only good when you have an issue in the legal realm, they are not up-to-date on the tax forms as they are on Tax Law. A CPA is good, but are expensive... Jackson Hewett... I have no idea... H & R I only know... Liberty Tax (Stay Away)

Zip Taxes :

Even Non-Owner Occupied you should be able to get out of it.

Zip Taxes :

If you were filing a Schedule E, you can calclulate your expenses to maintain... but I would "revisit" the issue, I'm feeling that the tax preparer made an error

Customer:

I will go to H&R but is it too late since the taxes have already been filed?

Zip Taxes :

No, never too late

Zip Taxes :

It's okay if it's file, because once processed, you can do a 1040X and make the necessary correction if need be

Customer:

Thanks. I'll contact someone now.

Zip Taxes :

ok, I wish you the very best... and the best way are to take the taxes that have been filed with all of your supporting info, go in or call and say you need a 2nd look on your return. You want someone with experience with Schedule E and Short Sale Issues...

Zip Taxes :

I have a question

Zip Taxes :

Did you receive a 1099-c or 1099-a ?

Zip Taxes :

on the property?

Customer:

One is a 1099c for $26,506 the other is a 1099c for $62,363.

Zip Taxes :

1st and 2nd?

Customer:

Yes

Zip Taxes :

The house was in what state?

Customer:

It was a condo in FL. I lived in CA until a month before it sold (when I moved to FL). I never occupied the property

Zip Taxes :

ok

Zip Taxes :

Was the 1st and 2nd combined used to purchase the condo?

Customer:

Yes. I was very busy with work at the time and didn't realize I was getting a 2nd mortgage that was adjustable. My bad. My fault. Stupid.

Zip Taxes :

So it appears to me that the 2nd got nothing and the first was shorted of 26,506

Zip Taxes :

Well, in my opinion I don't think you should have to pay... You couldn't occupy the home do to work took you to another state anyway

Zip Taxes :

but

Zip Taxes :

I would try to get this wiped out

Customer:

The second settled for $4000. I paid $142,00 for the property originally. Both banks bought the loans from banks that went under so they didn't really lose anything.

Zip Taxes :

i c

Zip Taxes :

OK, so do the second look by someone who is an expert in this area or a CPA but if you are able to wipe this out and it takes a CPA or a little expense to get it done, it will be well worth it.

Zip Taxes :

But in all cases do your best to stay away from the Retirement because it's cost you greatly in the Long Run for a long period of time.

Customer:

Thanks for you help. I SINCERELY XXXXX XXXXX can get it wiped out. I went from 6 figures to nothing. I have been wiped out except for retirement.

Zip Taxes, Tax Preparer
Category: Tax
Satisfied Customers: 156
Experience: CTEC Licensed / Mgmt Experience with H & R Block... Self Employed since 1986 Experienced in all Scheds
Zip Taxes and 7 other Tax Specialists are ready to help you

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Zip Taxes
Senior Tax Preparer / Realtor
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CTEC Licensed / Mgmt Experience with H & R Block... Self Employed since 1986 Experienced in all Scheds