Tax Time - A Question for Tax Savvy Freepers...

02.02.04 | mlmr

[mlmr]

I have a question for the tax-astute. My father died this year and his annuity paid out to my brother and me. I have just discovered that I owe taxes on what was paid out from his fund. I thought since it was insurence based that there would be no taxes owed. I also paid estate bills with the money. What is a girl to do?

I swear, FR is like having a wonderful husband!!

[cmsgop]

Very good questions, Bump!

[mlmr]

Thank you... Should I purchase something like Turbo tax to help fix this mess or should I find an accountant that I cannot afford?

[Stars N Stripes]

Not sure how it is where you live, but here in Calif. as long as the assets are under 600K you don't owe tax. At least that's what I was told when my Father died.

[mlmr]

The insurance company sent me one of those tax forms a 1099/ that means I owe tax. I am worried.

[Alberta's Child]

The insurance company sent me one of those tax forms a 1099/ that means I owe tax.

Maybe not. That may just mean that the insurance company reported it to the IRS as a disbursement to you -- on your tax return you may actually report it as tax-exempt income. I think you should consult a tax professional about this. You don't need an expensive accountant -- H&R Block generally does this kind of thing for a very reasonable cost.

[savedbygrace]

Hire a CPA. They're not usually very expensive.

[RandyRep]

If you got a 1099, then you owe income taxes on it. Was the full amount of your share on the 1099, or only a portion of it?

Was this annuity of your father's an investment vehicle, rather than pure life insurance? If it was a 401-K or IRA, then it's probable that it is subject to income taxes since it was tax-exempt when he contributed into it. If he was taking a portion every year, then he was probably paying taxes on the portion he received. For pure life insurance, where he paid a premium on a regular basis, that is not taxable since the premiums were paid with after-tax money.

You could consult a CPA or buy Turbotax - it should sort out everything you need to do. Uncle Sam will always take his share, it seems.

[mlmr]

I had a CPA do our return for the past 16 years and it ran between 1200 and 1500 per year. I cannot afford this.

[e_castillo]

Ask a CPA for sure. You will need to know what type of annuity it is or was. You could consider most annuities to be a form of payment by an insurance company to you or you Dad so it would "most likely" be taxable. Ask the folks that payed the annuity.

Bump!!

[lchoro]

The form 1099-R you received displays what amount you received and how much of the distribution is taxable. Both amounts are to be recorded on front of form 1040 on the line for Pensions & Annuities. The following is an image of the form 1099-R.

http://www.irs.gov/pub/irs-pdf/f1099r03.pdf

If you receive more than one, just record the total amounts on form 1040 and just clip each copy of form 1099-R to the tax return.

[mlmr]

Maybe not. That may just mean that the insurance company reported it to the IRS as a disbursement to you -- on your tax return you may actually report it as tax-exempt income.

It says on the instructions on the back that it is a death disbursment and that I need to report it as taxable income.

[RandyRep]

The $600K was the estate tax limit until 2002, when the limit went up to $1 million. I think it's up to $1.1 or $1.2 million now.

If you have an estate well below the limit, you don't have to file the estate tax papers with the IRS or the state.

However, if you have an estate over $100,000, you have to go through probate court if it is not in a trust.

I was trustee for my mother's estate two years ago and learned these things the hard way.

However, the question asked in the first post had to do with income taxes on an annuity, not an estate.

[savedbygrace]

My CPA does the returns for both an LLC and our personal stuff, and it's less than $1000 a year.

A consultation with a good CPA shouldn't cost more than $100. Call one and find out. The advice would be tons more reliable than what you're get in a public forum. Especially since you'll not want to post the information someone would need to give you decent advice.

[terilyn]

Yikes, find a new CPA. Ours does our taxes, (and both of my daughter's taxes), for about $150.00. And we do have self-employment income, etc. And he's terrific.

[balrog666]

Simple answer: If it was taxable, they would have taken out withholding tax. But hire a CPA and verify that.

[mlmr]

The full amount of my share was on the 1099. That was 50% of the total. It was some sort of investment vehicle. I did use about 7500 to pay on an outstanding bill of his that was due. Can I deduct paying his estate expenses? My brother needed the money immediately because he had not paid any bills during the last three months of my father's life. Dad had a 15000 credit card bill and brother and I decided to quickly get the money out of the IRA and split the cost of the bill. The rest of the estate went through probate.

[Alberta's Child]

. . . brother and I decided to quickly get the money out of the IRA and split the cost of the bill.

Now a blip just showed up on my radar screen. Are you saying that the annuity was in some kind of tax-sheltered or tax-deferred account?

[GovernmentShrinker]

You cannot be tazed on an amount that came from your father estate and was used to pay a debt of your father's estate. However, because the money went through you first, you may have to jump through some hoops to prove to the IRS that that's what the money went for. You really do need to hire a CPA to answer these questions, though not necessarily to prepare the tax return for you.

[NotQuiteCricket]

That sounds like a rip off to me. Find a different CPA / Accounting firm.