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2006 IRA Tax Trouble
I have always done my taxes however in 2006 I did not do so because I did not understand how to post my early withdrawal of my IRA. I got a tax extension and still never completed them or gotten help now I'm in a bind. In 2006, I was laid off and started being a substitute teacher. My earned income was $12, 348.00, unemployment was $5805.00 and I withdrew my total IRA of $20,996 (not all at once). I'm single parent of two and I used the monies to pay bills and maintain. #1) How do I post this on my 1040 taxes, #2) Is there a way that I don't have to pay the 10% penalty and #3) Is it best to use the standard deductions or itemize... Thanks :o
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Sigh...
I DO wish you had posted BEFORE you did the withdrawal. Your total income for 2006 is $39,149, which means you are NOT eligible for the Earned Income Credit. The IRA income is posted on Line #15 of Form 1040. You will pay taxes on the early distribution, plus a 10% Early Withdrawal Penalty. Now, assuming that the IRS custodian withheld the mandatory 20%, you will STILL get a refund because you still get $2,000 in Child Tax Credits. The only way to avoid the 10% penalty is to meet one of the exceptions, like using the money to pay for medical insurance or for higher education costs. Unless you own a home, the standard deduction is probably best. |
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You will also file form for Early withdrawal penalty Form 5329: Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.
You will report on 1040 line 7 -- $12, 348.00, line 19 -- unemployment was $5805.00 and line 15-- IRA of $20,996. Form 5329 tax will be on line 60. |
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The decision to use the standard deduction or itemize depends on whether you can itemize enough to exceed the standard deduction. Generally, if you don't own your home, you probably can't. A homeowner can itemize interest and property taxes, that usually allow them to exceed the standard deduction.
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