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From Roth IRAs to bankruptcy, WalletPop experts have the answers


IRS checksFor those who follow the Lunar calender, Feb. 14 ushered in the Year of the Tiger. That means 2010 will be a year of great social and personal upheaval. Get a handle on financial affairs, at least, by tackling your taxes now. WalletPop experts are on hand to answer your questions about Roth IRA withdrawals, refunds, and bankruptcy.

Question: I cashed in a Roth IRA at a loss. I know that I am not liable for income taxes on it, but can I deduct my loss on my return?
-- Joe


Answer from Barbara Weltman of The J.K. Lasser Institute: Because Roth IRA contributions are made with after-tax dollars, you can take a loss on investments in the account, but only if you take a complete distribution of all amounts in all your Roth IRA accounts. The amount of the loss is the difference between the distribution and your total contributions. The loss, however, is not treated as a capital loss. Instead, it is a miscellaneous, itemized deduction, which means you only get to claim the write-off if you itemize your personal deductions and the total amount of your miscellaneous itemized deductions is more than 2% of your adjusted gross income. What's more, you'll lose the benefit of the write-off if you're subject to the alternative minimum tax (AMT), because miscellaneous itemized deductions are not a subtraction for the AMT.

Question:My now-girlfriend filed a joint return with her husband two years ago. They filed a joint return at H&R Block, but he cashed the check from the government without her being present. She has never seen any of the money. We assume that she would be entitled to half of the return. She definitely was not present to cash the check, so we are wondering if he forged her signature. Would she have needed to be present to sign the check, or would he be able to sign the check without her signature? Can a joint return refund be cashed by only one of the parties?
-- Toby

Answer from Frank Armstrong, founder and CEO of Investment Solutions: Her tax preparer, H&R Block, should be able to discuss how the refund check should have been processed, and who it was made out to. There are at least three possibilities. If the check came from H&R Block via instant refund, she might have unknowingly signed off on the transaction when she signed off on the return. If they overpaid their taxes and were due a refund, it might have been applied as a credit to the following year's return, in which case there would have been no check. If she filed a joint return, then the IRS should have made the check out to both of them.

Question: Is there help for people who want to file bankruptcy, but cannot afford the $2,000 it costs to do it?
-- Kay

Answer from Bob Meighan, CPA and vice president of TurboTax: There are often free legal aid clinics and non-profit groups that provide guidance and counseling in the area of bankruptcy (and foreclosure). Check your local government for possible leads. If you use a fee-based service, be particularly careful with any agreement you sign and any prepayments you may be required to make. There has been a lot of fraud in this area. This is a great question, and we have tax and tech experts live on Twitter to help all season long @TeamTurboTax.

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