Answers in Accounting and Tax

Frank, I agree that you should remove the penalty from your return by amending it using form 1040X. Keep in mind that the IRS reviews amended returns. So, I recommend that you attach your supporting documentation to the 1040X to avoid delays in processing. Best of Luck!

Frank, Presumably if you reported the early withdrawal penalty, attached somewhere to your tax return was a Form 5329 to declare the amount of the penalty.

If you were in fact totally disabled as of the date of distribution, you should be eligible for the penalty exception. You would need to file an amended tax return for 2012 (Form 1040X), including an amended Form 5329, declaring the penalty exception that would apply (see the Form 5329 instructions for Part I, line 2).

Be certain to maintain the letter to substantiate the timing of the disability and that it predated the withdrawal.

Good luck to you!

Hello John,

The tax rate you pay on dividends will generally depend on a few factors. First, most dividends that I see people receive are what we call qualified dividends (dividends received from domestic corporations from stock that has been held for some time). These dividends are taxed at either the 0% tax rate, or 15% tax rate depending on your income. Taxpayers who are in the 10 and 15% tax brackets enjoy the 0% tax rate, while taxpayers in higher tax brackets pay the 15% rate. If a dividend you receive is not a qualified dividend and just a plain old ordinary dividend, it will be taxed as regular income and you will pay tax on it just like your other income. So, yes, the tax you pay on the dividends will vary according to your income in one way or another.

I should mention that yes, forgiven debt is taxable generally speaking, however there is an exception for insolvency. IRS form 982 will give you guidance on this issue. In this economy there are many situations in which immediately before the debt was forgiven, the taxpayers liabilities (debts) are greater than the value of all of their assets. This may give you a way out.

Hi Dennis,

Ultimately both your measure of Tobin's Q and the traditional measure are expressing a ratio of the market value of a company relative to the accounting value. Swapping out book value of debt for market value of debt should not have a material impact on your study's conclusions, but they will vary slightly.

In your study, you will probably find that the public market value of most companies is quite divergent from the book value. There are many legitimate reasons that a company could trade at a premium or discount to its book value. The intrinsic value of a company (which the market value attempts to reflect) is based on the future potential of its business model. GAAP book value, however, is primarily a backward looking metric and therefore does not necessarily accurately capture the true value of a business.

In regards to your question on voluntary disclosure, I would say that you might be picking up some spurious correlation. It is possible that companies with more disclosure in their filings are generally viewed by the market as more trustworthy and therefore have higher valuations on average. However, in the scheme of the variables that determine a company's value, "voluntary disclosure" is a small part of the equation.

If you want to find a stronger correlation, I would suggest comparing Tobin's Q to ROE. Companies with high returns on capital will trade at meaningful premiums to book value because book value is not accurately capturing the economic value of the company's assets. Therefore companies with high returns on capital are likely to have high Tobin's Q ratios.

In the end, what you're really studying is the question: "How is a company's market value determined?" Unfortunately in order to answer this question we have to dig much deeper than accounting metrics.

Is the tax code a mess? More like a weed that has grown out of control than a mess. It seems to be the place for politicians to reward their friends and punish those who do not follow their agenda. Because it keeps changing, it is a moving target that can never be conquered once and for all. The theme is add more tax to minority such as smokers, drinkers, the rich, etc. That way the politician still keeps majority happy and his job safe. A flat tax may be the answer but will probably never be passed because it would be too simplistic and would affect everyone including the majority of voters.

In addition to David's response, you can use the following link to get more information. For tax issues I like to go straight to the source, which is IRS's website:

http://www.irs.gov/taxtopics/tc409.html

I am also posting another link which talks specifically about the 2013 rates, as these have all changed recently.

http://www.nerdwallet.com/blog/investing/2013/2013-capital-gains-tax-rates/

Hope this helps. Otherwise, my partner Rob Riedl is a CPA and you are welcome to give us a call, if you have a specific question. Our website is www.endowmentwm.com.

While i'm not a CPA and not qualified to give personal tax advice, I have always found that information on Investopedia is very accurate and concise. They have the following link on Capital Gains that may help answer some of your questions: http://www.investopedia.com/terms/c/capitalgainstreatment.asp

In addition, I would recommend that if you are looking for the capital gains information for a specific investment account that you contact your broker and request a copy of your 1099 which will have all of the buy and sell data for the prior year. Best of luck.

Donald,

Jim makes a lot of great points in his reply, so I'll not bore you with a rerun of what he's already suggested.

Based on what little I can gather from a brief post, I'd like to offer another suggestion here. And, I think that's what Jim was referring to when he said, "did you ask the box?"

At your income level, I'd strongly advise you find a qualified CPA professional in your area, if for no other reason, to get a "second opinion" on your situation.

I'd also recommend consulting with your CFP professional to look for ways in which you might arrange your planning in to lower your taxable income in future years.

At $375,000 AGI, you're now in the upper 1%. As such, I'd definitely seek out some professional help. As one of my very successful business clients told me years ago, "If a job's worth doing, it's worth delegating".

Good Luck, Rod

Yes, you can if your plan allows it. You shouldn't, though. You will wind up being double taxed on the money that you use to pay the loan back - the first time, you'll be taxed when you make the contribution back to your 401k to repay the loan. The second time will be when you withdraw the money or convert it to a Roth. Furthermore, if you lose your job, you'll have to repay the loan in one lump sum, usually in 60 to 90 days. If you don't, then it will be considered a withdrawal, and you'll have to pay taxes and a 10% penalty if you aren't eligible to withdraw from your 401k. Your 401k should be your lender of completely last resort, just short of starving, losing your house, or not getting the medications you need. I'd rather you focus on ways to either increase your income (first and foremost) or decrease your expenses (next) than have you living beyond your means and thinking that you need to borrow from your 401k.

Here's another consideration: 401k balances are secure from creditors. After you pull it out, it's cash, and fair game for the creditors to go after. Borrowing from a 401k also creates bad habits. Once you break the seal on the sanctity of not borrowing from your 401k, it's easier to do so the next time, rather than building up the good financial discipline necessary to succeed with money.

In that sense, it's just like a credit line on your credit card. Just because someone has a $50k credit line, that doesn't mean that the person should go run it up.

Matthew, While I can’t speak to the context the online system is asking; most of the time the word “contribution” refers to deposits made into an IRA or Roth IRA out of the account owners pocket. In this instance, rollovers would not be considered contributions.

However, if you are preparing your taxes, it is important to note that the brokerage company should supply you with the following forms that refer to both rollovers and IRA contributions:

• Form 5498- Generated by the investment company reporting contributions to your IRAs as well as your 12/31 account balance.

• Form 1099-R- Form reporting any distributions from retirement accounts, including non-taxable rollovers. This form will also report a code for those distributions as an indication on how they should be treated for tax purposes.

I don’t mean to preach, but this should serve as a signal that even though your tax-return may seem simple enough to do on your own, it is better to engage a competent professional. DIY is okay for some things, but not this.