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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 17217
Experience:  10 years experience
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I would like to make a simple IRA witdrawal and understand

Resolved Question:

I would like to make a simple IRA witdrawal and understand it is subject to income tax and 10% penalty. I also have a capital loss carry over and also have more bank stock that has bankrupt that I need to file as more loss. Will this offset the income portion of the withdrawal dollar for dollar?
Submitted: 5 years ago.
Category: Tax
Expert:  Wallstreet Esq. replied 5 years ago.

Wallstreet Esq. :

Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificatiON.

Wallstreet Esq. :

When you file your tax return, you would be able to offset your IRA income liability, with any losses you have.

Wallstreet Esq. :

Be aware that under IRS rules:

Wallstreet Esq. :

Your capital loss carryover from prior years can only offset $3,000 of ordinary income each year.

Wallstreet Esq. :

a business loss does not directly offset the taxes on an early IRA withdrawal, a loss may have the net effect of negating any additional taxes generated by the early withdrawal. IRA withdrawals are considered ordinary income whether they are early withdrawals or not. The amount distributed is reported on Line 15a of Form 1040, where it adds to the taxpayer's total income. The profit or loss from a business is reported on Line 12 of the same section of Form 1040. In other words, if the business loss is equal to or greater than the income created by the IRA withdrawal, then the loss will offset the IRA taxes. The penalty for an early withdrawal is reported on Line 58 of Form 1040.




Wallstreet Esq. :

All your losses and credits would reduce your IRA tax liability.

Customer:

The current losses to be filed would not be from a business but from 50K cost basis bank stock on the bank that is out of buiness and has zero current value.

Wallstreet Esq. :

If you have a 50,000 cost basis on the stock that would certainly reduce your tax liablity, however dollar for dollar is not certain as it reduces your overall AGI, and then your taxable income would then be lower.

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