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How much federal and state do I have to pay in

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how much federal and state...
how much federal and state do I have to pay for cashing in a life insurance policy for 4809.62. I live in North Carolina
Submitted: 2 years ago.Category: Tax
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5/28/2015
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,877
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi,
If you are below your basis, (if 4894.62 is below your basis) you will have no tax at all.
Basis = the total premiums paid in.
So, lets say you paid 100/mo for 10 years; Your basis would be (100 x 12 x 10) = 12,000
In that case you would be WELL below you basis and you would have no tax.
If you ARE above your basis, lets say you paid 10/mo for 10 years: your basis there would be (10 x 12 x 10) = 1200
You would pay income tax on 4809.62 - 1200 = 3609.62
Meaning that 3609.62 would be added to your taxable income for the year you cashed out the policy ... so if you are in, say, the 25% tax bracket you tax on that portion of your income for the year would be (.25 x 3609.62) = 902.41
AND if you are under age 59 and 1/2 there would be an additional 10% tax penalty of 3609.62 x .1 = 360.96
If you'd like to give me your household income (other than any above the basis income from the policy) and how you file (single vs joint) I can give you a more specific answer.
let me know...
OR if you have any other questions...
Lane
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Tax Professional: Anne, Master Tax Preparer replied 2 years ago
Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2,439
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Hi
Different expert here. I'm Anne, and I've been preparing taxes for 27 years, and I have a totally different answer for you, depending on how/why you received the life insurance proceeds.
Per the IRS Pub 525 Taxable and Nontaxable income:
Life Insurance Proceeds
"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. "
If you have any further questions, please post them here and I'll be notified.
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Hi,
Your original expert here.
So sorry for the confusion. The second answer above is completely wrong....
You said you "cashed in" the policy.
What I have described is EXACTLY what happens when one cashes in a policy for it's cash value.
What this other answer describes is what happens when you receive the death benefit (sometime referred to as proceeds) from a policy, as it's beneficiary.
Hope this helps to clarify.
If you DID indeed receive the proceeds as the policy's beneficiary then the proceeds are tax free, ...
... but when you "cash in" the policy, the taxation depends on;
(1) the policy's basis (and how it compares to the cash value you received by cashing it in, and
(2) whether you are under or over age 59 and 1/2.
Here's the IRS guidance on this (from http://www.irs.gov/uac/Taxable-or-Non-Taxable-Income%3F-1 )
"Life insurance - If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are generally not taxable unless the policy was turned over to you for a price."
Pleas let me know if you have any questions at all...
Lane
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Lane
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Category: Tax
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