How to Compute the Taxable Amount of a Lump Sum
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Begin with the total amount of the distribution (cash and stock).
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SUBTRACT nondeductible employee contributions not previously recovered.
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SUBTRACT “unrealized appreciation” of employer stock (i.e., the current value less cost of the stock to the trust) which is included in the distribution., Net unrealized appreciation on the securities is not taxable until the securities have been sold., However, a taxpayer may elect to include net unrealized appreciation in income in the year the distribution is received., The instructions to Form 4972 describe the procedure to use to make the election.
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THE RESULT is the taxable amount.
If you are wondering how to compute the taxable amount of a lump sum payment, follow the steps that are outlined above. Consult with a local tax expert if you have questions about filing your