Tax Question

[Knoxville]

Anyone ever cash out a 401K account??

I was in a bind earlier this year, so I cashed one out. It wasn't a lot, I only had about 1000$ in there before I left the company.

I was penalized, and they taxed it for State and Fed taxes.

They told me that they would send me a 1099 form to fill out and that I'd have to pay 10% of the total amount.

I guess my question is.................. If a person forgot to submit their 1099 with their W2 when they file their income taxes..... What is the chance of getting an audit or caught?

I'm going to pay the 100$, but I'm just curious if that has ever happened.....


It's getting closer to that time of the year.

[bad14u]

Chances are 50/50 Bro. If the company you worked for files the correct paperwork showing that you cashed out and yet you don't file your paperwork, their will be some redflags popping up at the IRS eventually. Best bet is to just make sure to file your papers and pay the fee. The last thing you want is the IRS auditing you for the past 5 years.

[babyblues]

Well, whoever issued you the 1099 has filed that with the IRS so it is on record under your social security number. It may take them a few years, but the IRS will catch it if you didn't file it with your return. You wouldn't have to worry about an audit, but they would send you a deficiency notice and demand payment of the taxes plus penalties and interest. They don't miss anything.

[bonebreaker]

Well, whoever issued you the 1099 has filed that with the IRS so it is on record under your social security number. It may take them a few years, but the IRS will catch it if you didn't file it with your return. You wouldn't have to worry about an audit, but they would send you a deficiency notice and demand payment of the taxes plus penalties and interest. They don't miss anything.

Yup and yup. The assholes will get you sooner or later if you don't file it. BB

[SonofBone]

Stock options that you obtain through a discount plan through your employer are the same way. Typically, 18 months from issue date and 24 months from the start date of a purchase period is considered short term. If you sell the stock before those periods expire, the proceeds will be reported on your W2 as income & a 1099 is reported to the IRS.

If it is long term, you simply pay 20% of the amount you made...the difference between the proceeds and what you actually paid. You still have to make sure the proceeds match up, but the IRS doesn't have an easy way to find out what you paid.

If it is short term, you essentially pay your income tax rate (say 28%) on the whole amount. You pay 28% on the difference of what you and the company paid then also the difference between the company's price or purchase price and sale price.

If you don't report the sale correctly, the IRS will easily see the difference. They'll treat the sell like it has a cost basis of 0. This means you pay taxes on the entire amount of the sale. Unless of course, you can prove to them what you paid for the stock under the plan.

This is where you can get into trouble if you don't have access to the records. The decent thing about the 401K is that your employer reports each year what you contributed to your 401K, so the IRS already knows that. Also, you should only have to pay the penalty and taxes on the difference between the amount and what you contributed. Naturally, if you didn't contribute anything, then it would be the entire amount.

I didn't report a short term transaction correctly & they tried to tax the entire amount. Luckily, I had all the paperwork, prepared what I thought it should be & sent them a letter & a check. I couldn't believe it when I actually overpaid a small amount and they sent it back to me.

[Knoxville]

Thanks for the replies.......... Better than asking the person who files your taxes, then she'd give me the evil eye every time she saw me. I'll pay the dues, I was just curious as to what happens if you don't. I worked with a guy last year who cashed out 10,000$ in 401K. He was unemployeed for 6 months and needed $$$$ or go under. Everyone gets in binds every once in a while

[SonofBone]

Thanks for the replies.......... Better than asking the person who files your taxes, then she'd give me the evil eye every time she saw me. I'll pay the dues, I was just curious as to what happens if you don't.

You'd be surprised. It is ironic that people who can afford to pay higher taxes are the ones that hire creative accountants and take advantage of every loophole in the book. The people without money are the ones who actually end up giving more money away.

Nothing wrong with knowing all your options, potential pitfalls, & looking to gain more knowledge.

I worked with a guy last year who cashed out 10,000$ in 401K. He was unemployeed for 6 months and needed $$$$ or go under. Everyone gets in binds every once in a while

so true...

[Knoxville]

UPDATE.........

Filed my 1099's. I had 2, one 401K account had around 650 in it, the other had around 2800$ in it. I got a check cut to me for around 430$ and one for around 2150$. I would have got about 2100$ back on my taxes, but after paying penalties and additional taxes, my refund this year is around 900$.

I had total about 3450 in 401K

After early withdrawl, paying taxes and penalties, I ended up with 1380 in my pocket.

All I can say is taxes are a bitch.

Knox

[babyblues]

I hate tax season...I always have to fucking pay:mad:

Well, you should....cause you're fat....:D

[babyblues]

All I can say is taxes are a bitch.

I hate taxes. :(