OK, we’ve all had them…client comes in with some screwball idea about a deduction his CPA said he could take that isn’t true. You go, why don’t you have your CPA do your taxes?
This latest one takes the cake. I’ve been doing their return for over 10 years. Last October, the husband died, and the wife, who is in her late 50s, comes in last week to finish the extension we filed. I had never dealt with her before because her husband always came in to do their taxes. She gives me this 1099R from her husband’s 401(k) plan showing a distribution of over $35,000, code 4, distribution due to death, no penalty. She tells me it isn’t taxable because he died and they had to distribute it because he no longer worked there. I said it was taxable and that the only thing the code 4 meant was that there was no penalty for early withdrawal. It was too late for her to roll it over because I didn’t know about her taking the distribution until last week. I figured the tax and told her she owed over $5,000, all due to the 1099R. Of course she didn’t have any of the money left because he didn’t have life insurance, and it all got eaten up paying bills and stuff after his death.
To make a long story short, I get a call this morning from her saying her CPA said I shouldn’t have taxed all of that $35,000 because there is a death benefit exclusion for pension money, and I didn’t know what I was talking about when I said she had to pay all of that tax. I said who is this CPA; I need to have a talk with him. She gave me his number, and as it turns out, it is a nephew of hers who works as a financial analyst for a local brokerage firm. He is a CPA but hasn’t worked with taxes for 10 years. I said the death benefit exclusion hasn’t been around since 1996. He wasn’t sure he believed me, but he’d get back to me.
Why do people always think they can give tax advice when they aren’t in the business???
This latest one takes the cake. I’ve been doing their return for over 10 years. Last October, the husband died, and the wife, who is in her late 50s, comes in last week to finish the extension we filed. I had never dealt with her before because her husband always came in to do their taxes. She gives me this 1099R from her husband’s 401(k) plan showing a distribution of over $35,000, code 4, distribution due to death, no penalty. She tells me it isn’t taxable because he died and they had to distribute it because he no longer worked there. I said it was taxable and that the only thing the code 4 meant was that there was no penalty for early withdrawal. It was too late for her to roll it over because I didn’t know about her taking the distribution until last week. I figured the tax and told her she owed over $5,000, all due to the 1099R. Of course she didn’t have any of the money left because he didn’t have life insurance, and it all got eaten up paying bills and stuff after his death.
To make a long story short, I get a call this morning from her saying her CPA said I shouldn’t have taxed all of that $35,000 because there is a death benefit exclusion for pension money, and I didn’t know what I was talking about when I said she had to pay all of that tax. I said who is this CPA; I need to have a talk with him. She gave me his number, and as it turns out, it is a nephew of hers who works as a financial analyst for a local brokerage firm. He is a CPA but hasn’t worked with taxes for 10 years. I said the death benefit exclusion hasn’t been around since 1996. He wasn’t sure he believed me, but he’d get back to me.
Why do people always think they can give tax advice when they aren’t in the business???
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