Cashing out whole life and taxes

Hey Ya’ll
I got a piece of junk mail from a company that I have whole life insurance with. On a whim I cashed out the insurance. I’ve had it since 82 I believe and it’s earned less than a traditional savings account. The cash value was about 4100. I was given the option to have them deduct tax or get the whole amount and report it year end. I chose the get everything option. My question is how does IRS find out I got this money? Will the company immediately report the payout to the taxman? Will the taxman put an asterisk next to my name for receiving x amount of untaxed money? Should I put it in a Cayman island account or start a shell company?

Nobody here works for the IRS right? ​

 

I did something similar a few years ago. If I remember correctly taxes only apply to the amount you receive that is over what you paid in premiums. I didn't receive any tax forms and paid no taxes. I hope this helps.

 

My grandpa started it, so I don’t know what the initial amount was. Dividends were absorbed by the contract for payments.

 

I got burned 2-3 years ago not reporting "income" from an old health savings account at a former employer that I had cashed out. I remember at the time hearing "the IRS is cracking down..." commercials on the radio and thinking pffffft. Well, they are cracking down. I ended up owing them over $4k. They have broad authority to go digging through everybody's financials so unless you're in the upper echelon of society, you're a fair target.
Your situation is different though. It's worth doing some digging because at the other end of the spectrum, you don't want to pay taxes on something that you aren't required to.

 

Call hunter he can probably help you out.

 

Any amount over the cost of the premiums is considered gain and will be reported to the IRS by the insurance company, the gain will be taxed as ordinary income.

 

They report it to the IRS even if you don't get tax forms (some sort of 1099 probably). Back in the old days (80s-90s), it was harder for the IRSto have a very good understanding of what you should be paying taxes on, especially on lower amounts that were paid out. Nowadays, they have a much better handle on it. Just cashing the check (or having it moved in some way to your bank account), will probably be reported by the bank even if you had a back-door deal with the insurance company.

 

I was thinking about just making up a value. I’ll tell them the check was only worth $40. ​

 

Move it around to a few shell companies, perhaps?

 

Maybe paint/sell some "high dollar pics"?

 

The insurance co has to report all payouts. It's like deducting rent on your taxes. You can say you pay $2000/month, but if the landlord is reporting your rent is $1000, there's going to be a problem.

 

Thanks, my wife is a small business owner, so we have always used a tax preparer. I’ll make sure to report the windfall.

 

Come on man...Live a little!!

I will come visit you in prison!! LOL

 

Or just take all the important stuff and lock it in a bathroom with the gold toilet .

 

hmmmmm...

 

I don't think Chud is looking for a conjugal visit from you...

 

You will probably receive a 1099-R. If you do not pay the tax due by April 15 then the IRS will probably also charge a late penalty and interest. Found that out by making a mistake one year. By the time the IRS sent me the bill I had penalties.

 

Shhhhh!!

 

*grabs shovel* yea, noone works for the IRS right??