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the mutual fund of sorrow and dismay

I got a letter from the IRS stating that I screwed up... get this... my 2004 tax return. egads. I was filling out the EZ in 2004, if I screwed that one up I don't even want to think about what'll happen when they look at 2005, where I finally itemized. I'm doomed.

Anyway they're saying that I made an extra $1064 that they should have taxed me on and I owe them $300. The letter is long and weird (most of it consists of papers to just send in the money) and I'm trying to figure out a way to disagree with them. That $1064 is from the mutual fund I cashed out that year. The story there: when I was 18 I saved up $1000 (which was a BIG deal) and wanting to be responsible I bought the mutual fund. Six years later I'd made $64, which I thought was a load, so I cashed that bitch out and used it responsibly towards a 15" powerbook G4. I was really bitter about it, because $1000 now is a few rent payments... a nice boost to the monthly budget, but you know, not life changing. When I was 18 $1000 was infinity money. I mean, it took me four years of babysitting and working at a shoe store at $6.25 an hour to get that. I could have started my freshman year with a much better wardrobe but I didn't. And the worst part was that the purpose of the mutual fund was to get me a good start after college... it was supposed to be my first car's downpayment, or first month's rent, or furniture, for a girl starting out with nothing. But in 2002 it wasn't even $1000. I left it in the fund from 2002-2004 to make that back, it was down to $800 when I graduated and I didn't want to pull out while share value was so low. It's a tragic story of $1000 that never was there for me and now it REALLY never was there for me since I owe $300 on it.

So it's not like I made $1064, on the contrary, I made $64 IN SIX YEARS, and every year that it actually made money I paid taxes on the incremental profits, and I never wrote off the initial $1000 because I was too poor to even pay taxes when I was 18. Normally I'm not too bitter about the tax thing, I know we all have to do our part, but they're taxing something that's an emotional pinpoint with me. Hell, especially NOW, since I'm investing on my own and doing pretty craptacular at that (I bought stocks for my birthday this year, on May 20th, and they've done nothing but plummet since then... money hates me).

Should I get an accountant for this or a lawyer?

In other news you're probably wondering why I'm updating my journal at 3 am... well, Marc and I were planning to go out last night but felt tired after our workout, so we decided to take a "disco nap" and laid down a little before 9 with plans to wake up at 11 and hit the clubs, and that all sort of backfired because we forgot to wake up at 11. dammit. okay, there's always saturday night.


( 11 comments — Leave a comment )
Jun. 24th, 2006 10:45 am (UTC)
Accountants and lawyers? Over here I'd just ring the Inland Revenue and explain. Your country is mad.
Jun. 24th, 2006 12:11 pm (UTC)
I could try that. I don't know if I'm like most americans (probably) but I'm kind of scared to fuck with the IRS without the help of a professional. They have the highest conviction rate of any government agency.
Jun. 24th, 2006 01:35 pm (UTC)
But you're not fucking with them, and you haven't done anything illegal to be convicted of! You're explaining to them the origin of a number they are confused about.

That's before I say, how did they know about it anyway, do they watch everybody's bank accounts now...
Jun. 24th, 2006 01:57 pm (UTC)
If I remember right you probably owe taxes on it. Usually when you take something out of a fund or 401k that happens.

I think that's what I understand from the link too: http://www.bankrate.com/brm/itax/edit/news/stories/20001025b.asp

I would talk to an accountant or even a lawyer. Just in case.

Unfortunately they don't care if you made money or lost. They just see the money that's there. It sucks.
Jun. 24th, 2006 03:14 pm (UTC)
No you're only supposed to pay taxes on the gains you make, because the initial capital was already yours, so you can't be expected to pay income tax on that part, because it isn't income. So in Spacefem's case, she should only be paying tax on the $64 gain, and not on the entire $1064, because the original $1000 was already hers.

It's like saying that you have to pay income tax when you withdraw from a savings account. If that were the case, everyone would be keeping their savings as $100 bills stuffed in the mattress.
Jun. 25th, 2006 08:09 am (UTC)
but then, in that case wouldn't what the person above said be untrue of 401k accounts as well, because the principal on that is also your own money that's deducted from your payroll as savings... but when you withdraw or close your 401k, i believe you have to pay tax on the whole withdrawal. I could be wrong - i let the accountant types do my worrying for me.

whatever. I guess there was no point to that statement if i'm just going to follow it up with 'but I could be wrong.'


Jun. 25th, 2006 12:21 pm (UTC)
as I understand it (and I could be wrong, I'm not american) the crucial difference with 401k is that you never paid income tax on the initial capital because it was deducted directly from your gross salary before the tax man could see it. so paying income tax on it when you close the 401k is correct, you are still only paying tax once on the main capital.
Jun. 26th, 2006 10:45 am (UTC)
dizietsma is correct. 401k monies are taken out of your paycheck prior to calculating income taxes due, that is why you pay taxes on any amount withdrawn later. The idea is that your tax bracket will be lower when you retire so the taxes you pay on that money will be "add" to your savings by not paying higher taxes on the income or any interest/dividends it accrues prior to retirement.
I will have to look at my pay stub, but I do believe that Social Security taxes are assessed against the gross amount (before the 401k $ are taken out).
Jun. 24th, 2006 02:18 pm (UTC)
Sounds like you need to amend your 2004 return and include the $64 over the $1000 investement as a capital gain. But that shouldn't amount to a $300 tax liability unless they are adding on some crazy interest and penaltiies. I think it would be best to call and explain this to them and ask them what the $300 charge includes, a breakdown of sorts. If the untaxed income is more than the $64 capital gain then ask them how they are coming up with these figures.

I uploaded the federal install files for Tax Cut and Turbo Tax for 2004 for you at you send it dot com, just click on the links to download them.

2004 Tax Cut:


2004 Turbo Tax:

Jun. 24th, 2006 03:15 pm (UTC)
First get all your papers together, including your intial investment papers. Then call the IRS ask for an apointment, and go talk to them, If that does not help, you can then see an acountent.

Good Luck.
Jun. 24th, 2006 03:36 pm (UTC)
If you have lots of extra lines to fill in, either make sure you have a great tax program, or see an accountant, because it can be a bitch. Also, you could've gotten some tax returns if you reported really low earnings in high school/college...
( 11 comments — Leave a comment )

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