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18 November 2008

Re: [taxchat] 1099-Q EARNINGS

Here is Pub 970 - you should find the answer here starting on page 49 - shows how to calculate taxable portion, etc.  IRS website is a great source of info for "free". 
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----- Original Message -----
Sent: 11/18/2008 12:37 PM
Subject: Re: [taxchat] 1099-Q EARNINGS

Instructions for Recipient

Box 1. Shows the gross distribution (including in-kind distributions) paid

to you this year from a qualified tuition program (QTP), under section 529,

or a Coverdell ESA (CESA), under section 530. This amount is the total

of the amounts shown in box 2 and box 3. See Pub. 970 for more

information.

Box 2. Shows the earnings part of the gross distribution shown in box 1.

Generally, amounts distributed are included in income unless they are

used to pay for qualified education expenses, transferred between

trustees, or rolled over to another qualified education program within 60

days. Report taxable amounts as "Other Income" on Form 1040.

Box 4. This box is checked if you transferred the amount in box 1 from

one education program to another education program in a

trustee-to-trustee transfer. However, this box may not be checked if the

transfer was made from a CESA.

Box 5. Shows whether the gross distribution was from a QTP (private or

state) or from a CESA.

Box 3. Shows your basis in the gross distribution reported in box 1.

designated beneficiary is not a family member or is over age 30 (except

for beneficiaries with special needs).

Also, an additional 10% tax may apply to part or all of any amount

included in income from the CESA or QTP. See Form 5329 and your tax

return instructions for more information.

If a final (total) distribution is made from your account and you have

not recovered your contributions, you may have a deductible loss. If you

itemize, claim any loss on the "Other expenses" line of Schedule A (Form

1040), Itemized Deductions.

Under a QTP, the amount in box 2 is included in income if there has

been (a) more than one transfer or rollover within any 12-month period

with respect to the same beneficiary, or (b) a change in the designated

beneficiary and the new designated beneficiary is not a family member.

Caution: For CESA distributions (other than earnings on excess

contributions) made during 2008, the payer/trustee is not required to report

amounts in boxes 2 and 3. Instead, the payer/trustee may report the fair

market value of the CESA as of December 31, 2008, in the blank box below

boxes 5 and 6. To figure your earnings and basis, use the Coverdell

ESA—Taxable Distributions and Basis worksheet in Pub. 970.

Distribution codes. For 2008, the payer/trustee may, but is not required

to, report (in the box below boxes 5 and 6) one of the following codes to

identify the distribution you received: 1—Distributions (including transfers);

2—Excess contributions plus earnings taxable in 2008; 3—Excess

contributions plus earnings taxable in 2007; 4—Disability; 5—Death;

6—Prohibited transaction. Note: Nontaxable distributions from CESAs

and QTPs, including rollovers, are not required to be reported on your

income tax return. See Pub. 970 for more information.

Account number. May show an account or other unique number the

payer has assigned to distinguish your account.

Under a CESA, the amount in box 2 is included in income if there has

been a change in the designated beneficiary and the new

----- Original Message -----
Sent: 11/18/2008 10:53 AM
Subject: [taxchat] 1099-Q EARNINGS

 
I have a client who had a distribution of $18,946 on a 1099-Q of which the earnings were $4,552. Her educational expenses were $3,100.  She would then have income of $1,452.  It appears the $1,452 is also subject to a 10% penalty?  Is that correct?,___



Arnie Socol
President
Ways & Means, Inc.
845-562-6070

Arnie Socol
President
Ways & Means, Inc.
845-562-6070
__._,_.___

IRS Circular 230 Disclosure: Unless expressly stated otherwise in this transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.



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