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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I have been unemployed all of 2012 due to an injury caused

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I have been unemployed all of 2012 due to an injury caused by a slip and fall accident. I had to withdraw funds from my IRA in order to pay for basic expenses. I also incurred a good deal of medical expenses, because my COBRA premiums were quite high (app. $600/mo). Is there any special tax deduction that I could use in this case? I am using TurboTax Home & Business.

Lev :

Hi and welcome to our site!

Customer:

Hi

Lev :

Sorry for your situation...
First of all - you might be able to deduct your out-of-pocket medical expenses.
If, for a taxable year, you itemize your deductions on Form 1040, Schedule A, you may be able to deduct expenses you paid that year for medical and dental care for yourself, your spouse, and your dependents. You may deduct only the amount by which your total medical care expenses for the year exceed 7.5% of your adjusted gross income.

Customer:

Okay

Lev :

Then - because you took IRA distribution - that amount is added to your taxable income.
In additional - if you are below 59 1/2 - there are additional 10% penalty. However if you were unemployed - you may claim an exclusion form penalty.

Customer:

Is there anything else I could deduct?

Customer:

Great, how to I get this exclusion form penalty ?

Customer:

Does the exclusion form penalty apply because I'm unemployed?

Lev :

If you paid California state income tax during 2012 - that amount is deducted on your schedule A as part of itemized deduction.
For medical expenses - you may add travel expenses related to doctor visits, etc.

Lev :

You may prepare your travel log and will be able to claim as medical expenses in 2012 23 cents per mile driven for medical purposes.

Customer:

The California state income tax paid would be for 2011 Tax Return, correct?

Customer:

How do I claim the penalty exclusion?

Lev :

Does the exclusion form penalty apply because I'm unemployed?
There are two types of exclusions.
Exclusion from 10% penalty and deduction for income tax purposes are not directly related - same expenses may be used for both purposes as long as all requirements met.
Specifically to qualify for exclusion from penalty - the taxpayer must have distribution above unreimbursed medical expenses during the year minus 7.5% of his/her adjusted gross income for the year.
However - according to IRS publication 590 page 56 - http://www.irs.gov/pub/irs-pdf/p590.pdf
You can only take into account unreimbursed medical expenses that you would be able to include in figuring a deduction for medical expenses on Schedule A (Form 1040).
There is a separate exclusion related to IRA distributions made to unemployed individuals for health insurance premiums. However that exclusion may not be used for distributions from 401k plans - only for IRA distributions.

Lev :

The California state income tax paid would be for 2011 Tax Return, correct?
For 2012 income tax return - you will include California state income tax paid during 2012 tax year - that include taxed paid for 2011 and for 2012 - but those that are paid during 2012.

Customer:

Mine an IRA distribution

Customer:

Mine IS an IRA distribution :-)

Customer:

Can I enter as unreimbursed medical expenses: COBRA premium, medical expenses, prescription medication, hospital bills? If I cannot claim the transportation cost it does not matter since it is negligible.

Lev :

How do I claim the penalty exclusion?
You need to use form 5329 - www.irs.gov/pub/irs-pdf/f5329.pdf
exception number is XXXXX on line 2
05 Qualified retirement plan distributions up to (1) the amount you paid for unreimbursed medical expenses during the year minus (2) 7.5% of your adjusted gross income for the year.
07 IRA distributions made to unemployed individuals for health insurance premiums.

For the first type of exclusion - all medical expenses are considered - but there is a floor limit of 7.5% of the AGI. For the second type of exclusion - only health insurance premium expenses are considered - but there is no limitations.

Lev :

Can I enter as unreimbursed medical expenses: COBRA premium, medical expenses, prescription medication, hospital bills?
Yes - all these are qualified medical expenses if are not reimbursed by your employer.
See Publication 502, Medical and Dental Expenses, for additional information - there is a large list of expenses which are deducted as medical expenses.

Customer:

Is it possible to access these forms in TurboTax? I always select the EasyGuide...

Customer:

Perhaps I could run through the EasyGuide, ten look for the forms?

Customer:

...then look for the forms

Customer:

Can I submit my taxes tomorrow (I have an extension), and then submit an amended version later if I find other ways to deduct from taxes paid?

Customer:

I have already paid the taxes on April 15

Lev :

Yes - all these forms are available in TurboTax.


At the end of the retirement income interview, you will be informed about the penalty. The next screen lists the exceptions and asks whether any apply to you - when you complete that interview, that triggers the 5329.
Lev :

Yes - you may e-file tomorrow - and if something missing - you may amend - but amended tax return may not be e-filed - and it will take longer to process.

Customer:

Thank you so much.

Lev :

You are welcome.

Customer:

Can I still see your answers when the chat is over?

Customer:

Okay, I will come back to you again if I have another question. Should I just type Lev, in the beginning of my question?

Lev and other Tax Specialists are ready to help you
You are welcome back any time.
You may start your question with something like "For LEV only..." if you want me specifically to address your issues.
I might be not immediately available - but surely will reply ASAP.
Appreciate your EXCELLENT rating.