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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22643
Experience:  Taxes, Immigration, Labor Relations
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Can or should I (by law or otherwise) still file my 2010 taxes

Customer Question

Can or should I (by law or otherwise) still file my 2010 taxes? Personal income tax. I did not work because I was going to continue going to college but instead cared for my mother who had been diagnosed with pancreatic cancer. I cared for her until her death on September 30, and partly due to the economy and my own grief, I did not work for the remainder of the year.

I completed FAFSAs for my two college daughters, and was selected for verification due to the unusual income circumstances. My mother's disability and retirement income supported us while I cared for her and they attended school. So, if I file now, it may effect their financial aid.

The only income I did have for last year was my share of her 401k (as one beneficiary) and my share of her life insurance policy from work. (She also had a life insurance policy from the federal government, but she had cashed that in before her death to pay off many of her debts, bills, while we were hoping she would recover. She left the remainder in her checking account which she shared with my brother, and we used that toward her funeral and other expenses upon her passing.)

So, the only 'income' that I can think of would be the amounts I received for her 401k and life insurance policy. Both companies took taxes out - and that is the part where I am wondering if I should report to IRS about.

In addition to myself, I had a 19 (she's 20 now) year old college student that I could claim, I believe? My 18 year old was claimed by her biological (we are divorced and she doesn't live with him, but he gets to claim her because he put it in the divorce papers) father, and my 8 year-old twins were claimed by their dad, even though we all live together. (I have 4 daughters, total, all of whom live with me.)

My fiance filed single, head of household because my mom had passed. She had filed head of household previously. He claimed his son (he has full legal and physical custody) and our 2 girls.

I apologize in advance if this is confusing, but I wanted to lay as much of it out as possible to help you with finding an answer for me. Thank you.

Oh - I live in Minnesota! Sorry. I live on an indian reservation, too, so that is a special consideration, as well. I am native american. Thanks again!
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

LEV :

Hi and welcome to Just Answer!
Sorry for your situation...
Please be aware that...

1. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. However, interest income received as a result of life insurance proceeds may be taxable.
2. Distribution from the inherited 401k account is your taxable income. It is not a subject of penalty - but still a subject of regular income taxes.
3. Inheritance itself is not a taxable income – so all the money you inherited from your mother’s checking account – are not taxable.

Your filing requirements are based on your total taxable income and filing status - see IRS publication 501 page 3 - www.irs.gov/pub/irs-pdf/p501.pdf - Table 1. 2010 Filing Requirements Chart for Most Taxpayers. Thus if the taxable amount of 401k distribution is for instance $20,000 - you are required to file your tax return.
Will or not you have any tax liability is determined when you file your tax return - but I may estimate if needed.

Customer :

Ok, I will check the documents regarding her 401K and death benefits paid. The life insurance company (Cigna) made a mistake so paid part of benefit in Dec, and remainder in May of this year. I am almost certain they deducted something - I will get that documentation and continue with this.

Customer :

I will also check the irs.gov website. Thank you very much, so far!

LEV :

Take your time. Please be sure to verify the total amount of your taxable income - that is important because that amount affect your filing requirements.

Expert:  Lev replied 2 years ago.
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