The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: NOT taking a tax credit||Date: 6/17/2000 2:19 AM|
|Author: jackalope29||Number: 36667 of 120410|
Here is a copy of my e-mail with the IRS...
NOTE: Our response to your tax law question appears below. If you have
additional questions on this or other general tax law topics, please
return to our web site at: (http://www.irs.gov/taxlaw) to submit it.
Please do not use your "reply" button to send a follow-up question.
The information you gave us was not entirely clear. We would have no
way of knowing whether your insurance company made a mistake regarding
your withholding. If you have already filed for an extension, you may
want to wait until you have received a corrected Form 1099B before you
file your return. In any case, if your tax preparation software will
not accept your 1099B withholding, you may need to file a paper tax
return or a paper amended tax return.
It is also not clear how you could have ended up with negative adjusted
gross income, based on the information you gave us. Your excludable
foreign earned income must be added into your gross income before it can
be excluded. After your excludable foreign earned income has been
reported on your Form 1040 on line 7 or 12, and then subtracted on line 21,
your remaining adjusted gross income should reflect your US earned
income, your interest and 1099B income.
Once you have elected to claim the Foreign Earned Income Exclusion, you
must utilize it to its fullest allowable extent in any year that you
are otherwise entitled to claim it. If you fail to fully utilize your
maximum allowable excludable income amount, this will constitute a
revocation of the Exclusion, and this could jeopardize your right to claim
the Exclusion in future years.
This law generally makes it difficult to contribute to your retirement
plan if you are claiming the Foreign Earned Income Exclusion, because
you are required to have taxable US compensation in order to contribute
to a retirement plan. Retirement plan contributions and the Foreign
Earned Income Exclusion are mutually exclusive unless you have US source
compensation, or, foreign earned income in excess of the maximum
If you have not previously claimed the Foreign Earned Income Exclusion,
you may need to carefully consider its value to you. You may also want
to look into the possibility of starting a retirement plan in the
country in whicn you reside.
Recharacterizing your Roth IRA means backing out of the conversion from
a traditional IRA to the Roth IRA. It is not clear that this would
apply in your situation. For further information, refer to Publication
590, INDIVIDUAL RETIREMENT ACCOUNTS, on our web site.
There is a 6% penalty for excess contributions to your Roth IRA. The
penalty is reported on Form 5329, ADDITIONAL TAXES ATTRIBUTABLE TO IRAs,
Your Question Was:
Question 1 (1099B) I am a US citizen residing abroad. Last tax year I
received a 1099B from my life insurance company. The company
demutalized and as a result I received a payment. The company witheld 31%
since they did not have my social security number. They issued me a 1099B
reflecting the witholding. Upon completing my tax forms (1040) I was
unable to enter the tax witheld on the 1099B form. I am using Turbo Tax
for the web, which according to Intuit, covers 1099B forms. My
insurance company now seems to think they have made a mistake. They recently
requested my social security number and implied that they will be
correcting the witholding error. They also suggested that I will have to
file an amended return. I just filed for an extension so that I can sort
out these problems prior to filing. My question is what should I do
with the 1099B form? Did my insurance company make a mistake? How
should I report the income and witheld tax? Question 2 (ROT!
H IRA contribution with negative?? income) I qualify as residing in a
foreign company (under both tests). I did however, earn $2000 while in
the US on a short vacation. Other than that $2000 I do not have any
taxable income (other than a small amount of interest income and the
aforementioned 1099B income). My foreign earned income is less than the
exemption. Last tax year I made a $2000 contribution to my ROTH IRA.
However upon completing my tax forms it seems that because I reside
abroad and my income is relative low, I end up with a negative adjusted
gross income for 1999. As a result I was not permitted to contribution to
my ROTH IRA. My question is how can I contribute to a retirement plan,
ROTH or otherwise? Turbo Tax suggested that I will have to
recharacterize my ROTH. What is that? I also seem to have to pay a $120 penalty.
What is the penalty? Do I have to take the foreign tax credit that
makes my income negative? My bottom line is that I would lik!
e to make my full ROTH contribution since I am not eligible for any
other retirement program while residing abroad. Thank you for your
assistance. Please e-mail me if you need additional information.
IRS forms and publications may be accessed on our web site at the
following address: http://www.irs.gov/forms_pubs/index.html or ordered
through our toll-free forms line at 1(800) 829-3676 which is available 24
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EMPLOYEE ID: 28-23780 Mr. kolankiewicz Tel.:(787)759-5100
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