Tax questions

February 27, 1999

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15. See below for how to submit a question.

I withdrew $5,000 from my IRA on April 4, 1998, and then put $2,000 of it back as a rollover on June 1, 1998. I received a 1099 form which states that I must claim $5,000 as taxable income. I think I should only have to claim $3,000. How do I report this on my Form 1040? I may use TurboTax. Does it take this into account in its automated system?

Since you rolled the $2,000 into an IRA within 60 days of your withdrawal, it's not taxable. You'll need to report the full $5,000 on line 15a, but only $3,000 on line 15b, which is the taxable portion. If you had missed the the 60-day cutoff, you'd owe tax on the full $5,000. If you don't qualify for an exception regarding early withdrawals, you will also need to file a Form 5329 and pay a 10 percent penalty on the nonqualifying $3,000 distribution. If you have basis in this or any other IRA, you'll need to calculate its effect in reducing the taxable portion. TurboTax may make this calculation correctly, but double check to see that lines 15b and 53 have the correct amounts.

Craig Duncan, CPA, Young Brophy & Co. The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

To ask a tax question, call Sundial, The Sun's telephone information service, at 410-783-1800. Call 410-268-7736 in Anne Arundel County, 410-836-5028 in Harford County, 410-848-0338 in Carroll County. Using a Touch-Tone phone, punch in the four-digit code 6225 after the greeting. To submit questions by e-mail and access an online tax guide, go to The Sun's Web site at www.sunspot.net/tax.

Selected questions will be answered in the Business section. No questions will be answered personally.

Pub Date: 2/27/99

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