AI Generated

I inherited an IRA in 2009. I did not take any distributions until 2023. In 2023 I distributed the full amount. Will there be a penalty?

Assurance Checked This content has been verified by our TaxBuzz Expert Community
February 23, 2024

Based on the information provided, if you inherited an IRA and took a distribution in 2023, the early withdrawal penalty typically does not apply to distributions made to beneficiaries after the account owner's death. This is known as the "Beneficiary Exception." According to the context information, "Amounts distributed to a taxpayer’s beneficiary or estate after the taxpayer’s death are exempt from the early withdrawal penalty."

Therefore, since you inherited the IRA and took distributions as a beneficiary, you should not be subject to the 10% early withdrawal penalty, regardless of your age at the time of distribution. However, it's important to note that while the penalty may not apply, the distribution could still be subject to income tax depending on the type of IRA (Traditional or Roth) and other factors.

For a Traditional IRA, inherited accounts typically require beneficiaries to take distributions that are subject to income tax. The specific tax implications can depend on various factors, including whether the original account owner had reached the age at which required minimum distributions (RMDs) must start.

Given the complexity of tax laws and potential changes over time, it's advisable to consult with a tax professional or financial advisor to understand the full tax implications of your distribution and ensure compliance with current IRS rules and regulations.

User Avatar
Christopher DiLorenzo is a accountant in your area who can assist you with this question. Would you like to get in touch?

Share this post

Have a question? Introducing your new AI tax assistant.

Read our
Other Tax Discussions & Commentary
July 21, 2024

I apologize for any confusion. Under the current tax law, hobby expenses, including the cost of goods sold (COGS), are not deductible. However, let's clarify the reporting process for hobby income and expenses:1. Report Hobby Income: - All income earned from a hobby must be reported on your tax return. This is done on Form 1040, Schedule 1, line 8 (Other Income).2. Cost of Goods Sold (COGS): - While you cannot deduct hobby expenses, including COGS, from your taxable income, you should still keep detailed records of these expenses for your own records and in case of an audit.3. Filing: - On your tax return, you will report the total income from your hobby on Schedule 1, line 8. You cannot deduct the COGS directly on Schedule 1.4. Example: - If you earned $1,000 from your hobby and the cost of goods sold was $600, you would report the full $1,000 as income on Schedule 1, line 8. You cannot deduct the $600 COGS from this amount.The key point is that under the Tax Cuts and Jobs Act of 2017, for tax years 2018 through 2025, hobby expenses, including COGS, are not deductible. Therefore, in the example provided, you would report the full $1,000 as income on Schedule 1, line 8, without deducting the $600 COGS.If you have any specific questions or unique circumstances, it may be beneficial to consult with a tax professional to ensure compliance with IRS regulations.
Bart, true the BB says the expenses are deductible as an itemized deduction, the problem is they are deductible as a tier 2 misc deduction which are suspended by TCJA....Lee

July 16, 2024

When a client receives an IRS letter with some assessments that are accurate and others that are not, it's important to provide clear guidance on how to address the situation. Here’s a step-by-step approach to help your client:### Step 1: Review the IRS Letter Thoroughly- Read the Letter Carefully: Ensure you understand the specific issues the IRS has identified. Note the amounts in question, the tax years involved, and any deadlines for responding.- Identify Accurate and Inaccurate Assessments: Separate the items that are correct from those that are incorrect.### Step 2: Communicate with Your Client- Explain the Situation: Clearly explain to your client which parts of the IRS assessment are accurate and which are not. Provide them with a summary of the findings.- Discuss the Importance of Timely Response: Emphasize the importance of responding to the IRS within the specified timeframe to avoid additional penalties and interest.### Step 3: Options for Addressing the IRS Letter#### Option 1: Amend the Return for Accurate Assessments- File an Amended Return: For the parts of the assessment that are accurate, advise your client to file an amended return (Form 1040-X for individual returns) to correct the errors.- Include Payment: If the amended return results in additional tax owed, include payment to minimize interest and penalties.#### Option 2: Contest the Inaccurate Assessments- Prepare a Response Letter: Draft a response letter to the IRS contesting the incorrect assessments. Include: - A clear explanation of why the assessment is incorrect. - Supporting documentation (e.g., receipts, bank statements, corrected forms) to substantiate your claims.- Submit the Response: Send the response letter and supporting documents to the address provided in the IRS letter. Ensure it is sent via certified mail with a return receipt to confirm delivery.### Step 4: Follow Up- Monitor the Situation: Keep track of any correspondence from the IRS. They may request additional information or clarification.- Communicate with the IRS: If necessary, contact the IRS directly to discuss the case. Be prepared to provide further documentation or explanations.### Step 5: Consider Professional Assistance- Engage a Tax Professional: If the situation is complex or if your client is uncomfortable handling it on their own, suggest engaging a tax professional or CPA to assist with the response and any subsequent dealings with the IRS.### Sample Communication to ClientHere’s a sample communication you might send to your client:---Subject: Action Required: IRS Letter Review and ResponseDear [Client's Name],I hope this message finds you well. I have reviewed the IRS letter you received, and I understand that some of the assessments are accurate while others are not. Here’s a summary of our findings and the recommended steps to address the situation:### Accurate AssessmentsFor the items that the IRS has correctly identified, we will need to file an amended return to correct these errors. This will involve:1. Preparing and submitting Form 1040-X to amend your tax return.2. Including any additional payment if the amended return results in more tax owed.### Inaccurate AssessmentsFor the items that are incorrect, we will contest these assessments by:1. Drafting a response letter to the IRS explaining why the assessments are incorrect.2. Providing supporting documentation to substantiate our claims.3. Sending the response to the IRS via certified mail to ensure it is received.### Next StepsPlease let me know if you would like to proceed with these steps. I am here to assist you throughout this process and ensure we address the IRS’s concerns accurately and promptly.If you have any questions or need further clarification, please do not hesitate to contact me.Best regards,[Your Name] [Your Title] [Your Contact Information]---By providing clear guidance and support, you can help your client navigate the process of addressing the IRS letter effectively.

April 25, 2024

The 2025 Fiscal Year Budget, as outlined in the provided excerpts, focuses on several key areas to support and advance the United States' domestic and international priorities. Here's a summary of the main points covered:

1. Defense and Pacific Deterrence: The budget emphasizes strengthening deterrence in the Indo-Pacific region through the Department of Defense’s 2025 Pacific Deterrence Initiative. It aims to ensure the readiness of America's armed forces, invest in the submarine industrial base, and support the AUKUS agreement, particularly in aiding Australia to acquire nuclear-powered submarines.

2. Humanitarian Assistance and Global Food Security: It allocates $10.3 billion for humanitarian and refugee assistance to support millions of people worldwide. An additional $10 billion is requested to address global humanitarian needs, including the situation in Gaza.

3. Climate Leadership and International Finance: The budget doubles down on America's global climate leadership, aiming to fulfill the President's $11 billion commitment for international climate finance and includes a $3 billion contribution to the Green Climate Fund.

4. Domestic Investments in Families: Key domestic initiatives include supporting nutrition safety nets with $8.5 billion, funding universal pre-K and Head Start to enhance early childhood education, and expanding opportunities and equity through various programs.

5. Homelessness and Veterans' Health: It provides $4.1 billion for Homeless Assistance Grants and prioritizes veterans' mental health services and suicide prevention with significant investments in healthcare and benefits for veterans exposed to environmental hazards.

6. Workforce and Economic Preparation: The budget continues the implementation of the President's Investing in America Agenda, with substantial funding for infrastructure, transportation, and the introduction of a comprehensive paid family and medical leave program, alongside a call for mandatory paid sick days for all workers.

This budget reflects a comprehensive approach to addressing both immediate and long-term challenges, with a strong focus on defense, humanitarian aid, climate change, family support, veterans' health, and economic resilience.