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My husband and I are buying a house that will close before…

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Hi. My husband...

Hi. My husband and I are buying a house that will close before year end. We are each taking out $10k from our IRAs to help with closing costs. We will have a total salary (including these two $10k payments) of about $155k for the year (married filing jointly) and are trying to figure out how much to withhold from federal and NY state so that we are not hit with a big tax bill in the spring. Any thoughts on this?

Accountant's Assistant: The Accountant will know how to help. Is there anything else important you think the Accountant should know?

We also have a child and do the standard deduction on our taxes.

Submitted: 5 months ago.Category: Tax
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11/16/2017
Tax Professional: Lev, Tax Advisor replied 5 months ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,697
Experience: Taxes, Immigration, Labor Relations
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With combined gross income $155k filing a joint tax return - most likely - you will be in 25% tax bracket.

See here

https://taxfoundation.org/2017-tax-brackets/

So - your additional IRA distribution will likely be subject to 25% federal income tax.

Generally - when distributed amount up to $10,000 is used to purchase a home - you may claim exclusion from penalty.

Otherwise - there will be 10% penalty on distribution if you are below 59 1/2.

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Customer reply replied 5 months ago
OK so I should probably have my IRA company deduct 25% from the distribution before it's paid to me to be safe. It looks like I also have an option to deduct for NYS tax. Does it make sense to do that now or deal with it at tax time? If now, do you know what amount I should deduct? Since it is being used to purchase a home I had planned to claim exclusion from penalty.
Tax Professional: Lev, Tax Advisor replied 5 months ago

You actually meant withholding - that will be credited toward your tax liability when you file the tax return.

If you want to minimize possible additional tax liability - yes - you may ask to withhold 25% instead of 20% which would be normal withholding on IRA distributions.

On the other hand - after withholding - you will have $7500 to use toward your purchase and that might create a different issue...

In general - if you will have funds at the tax time - it might be better to pay the remaining tax liability rather later.

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