I am 28 yrs old and took out a loan from my 401K 3 years ago. Payments were being deducted from my paycheck on a regulary scheduled basis, until I left the company and was told I had 60 days to pay the remainder of the loan balance in full, which I did. I received two tax statements in the mail, one stating the gross amount of the loan and another stating the gross amount of the loan as $0. When I went to have my taxes prepared, I was told that I would have to pay taxes on the amount of the loan that was outstanding when I left, even though I paid it in full. Is this true? This is considerably lowering my refund and I want to make sure that the tax preparer is not making a mistake. Any info on this would be greatly appreciated, thank you!
2007-04-03 01:58:46 · 8 answers · asked by ihaveahugecrush 2 in Business & Finance ➔ Taxes ➔ United States
My tax preparer said that they will list it on the tax form, however put it as non taxable income, I say don't put it at all, thoughts?
2007-04-03 13:38:28 · update #1
And yes, one of the 1099R forms is mark corrected, that means i don't have to list it on the tax form correct?
2007-04-03 13:41:39 · update #2
I apologize the 1099 form which has $0 is marked duplicate rather than corrected, does that make a difference?
2007-04-04 01:47:00 · update #3
It is likely that the tax preparer is responding to a 1099 R that you presented which was sent to you and the IRS regarding the loan. If that is the case you have two approaches. One prepare the return using the information about the distribution as it appears on the 1099 R . As soon as you get the refund file an amendment with the documentation showing that you should not have been taxed on the loan. The second approach is to disregard the 1099 R now and get the larger refund. In 6 to 18 months the IRS will send you a CP 2000 form for under-reporting your income and demanding payment of the tax, with interest and a very large penalty. At that point you have 30 days to send them you justification for not paying the tax, which is because you paid back the loan in the required 60 days. If you can get your former company to send the IRS a corrected 1099 R with $0 distribution that would most likely resolve the problem before you get the CP2000.
Your tax preparer may not like the second option since most are trained to blindly put in the return what ever appears on any form you provide.
2007-04-03 03:10:55 · answer #1 · answered by ? 6 · 1⤊ 0⤋
The same exact thing happened to us awhile ago too! Except, we did not pay a portion of the loan back after my huband left the company, so we were taxed at a 10% rate on the remaining amount of the loan. However, if we had paid back the remainder of the loan within 60 days like you said you did, we would not of had to pay tax on it. Your tax preparer is wrong on that and I would not pay it if I were you. Your 1099 should have $0 in box 1 and 2 (gross distribution and taxable amount) but you said you got two tax statements in the mail, so it sounds like one has the remaining amount of the loan under gross distribution and one does not. I would use the one that says $0 as that is the correct one!
I would definitely not pay taxes on the remaining amount that you paid within 60 days. If you ever got questioned on it from the IRS you will totally be in the clear as far as the laws go. :)
2007-04-03 11:25:09 · answer #2 · answered by MarineMom 6 · 1⤊ 0⤋
If for instance you had $40,000 in your 401K and took out $10,000 of it you would still be taxed on the $40,000 if you paid it back or not. The taxable amount is what you should have had in your account because that is the amount of money that was tax deferred. The repayment of the loan was only to bring the amount up to what it should be and only comes into play if you are going to roll it over into another companies 401K. In the above case if you paid the loan back the company would send you a check for the $40,000 and if you didn't pay back the loan they would send you $30,000 so either way you receive $40,000 ($30,000 plus $10,000 loan).
2007-04-03 13:49:16 · answer #3 · answered by rememberme0247 4 · 0⤊ 1⤋
The only way your tax preparer could have included the loan on your return is, only if, you provided him a Forgiveness of Debt 1099.
Otherwise, he has no basis in claiming the loan as income.
I would highly suggest you go to a CPA for an alternate opinion.
2007-04-03 17:59:56 · answer #4 · answered by bold4bs 4 · 0⤊ 0⤋
If you repaid the loan within the 60 days, and have proof of this, NO you are not to be taxed on it..
2007-04-03 09:51:12 · answer #5 · answered by Mom of 2 4 · 2⤊ 0⤋
If you repaid the loan then you should not have to pay taxes on the loan.
2007-04-03 09:09:06 · answer #6 · answered by lestermount 7 · 2⤊ 0⤋
Is one of the 1099R's marked "Corrected"???
It is possible that the second one "corrects" the first one thereby eliminating any tax obligation.
2007-04-03 12:57:56 · answer #7 · answered by Wayne Z 7 · 0⤊ 0⤋
no
2007-04-03 09:03:17 · answer #8 · answered by Jo Blo 6 · 1⤊ 0⤋