Wednesday, February 02, 2005

> Questions and Answers > > QuestionI have 3 stock investments held long-term that I sold during 2004. I > had tax losses as follows: Stock A, $2,160; Stock B, $2,462; Stock C $9,933. > When I entered the loss for Stock C in my tax return preparation software, > the taxable income and federal tax refund didn't change. Why? > > AnswerBecause the maximum capital losses that may be deducted in any tax > year on an individual's federal income tax return is limited to $3,000. Excess > capital losses are carried over to the next year. See line 21 of Schedule D. > > If you are going to be an investor, you need to learn the rules of the game. > At least read the section on capital gains and losses in a good tax guide. > Your stock broker might also have some booklets on tax rules relating to > investments that you can study. > > QuestionWhy aren't PBGC retirement checks tax free, since our company, which > is now bankrupt, paid PBGC insurance premiums and insurance claims aren't > taxed? > > AnswerNot all insurance proceeds are tax-free. Life insurance and most > medical insurance benefits are usually tax-free, but even life insurance benefits > are occasionally taxable. > > QuestionCan I claim items like gas mileage and books on my tax return? What > about loans? I haven't begun to pay them and will begin to pay when school is > completed. I only make the interest payments. > > AnswerYou haven't given me many details for your situation. Personal > mileage, including driving to school to earn your first college degree, isn't > deductible. > > There may be some credits or deductions available relating to your education > expenses. I recommend that you go to the IRS web site at www.irs.gov and get > Pub 970, Tax Benefits of Education, and Pub 508, Tax Benefits for > Work-Related Education. > > QuestionI have been contracted by an IT staffing company to a company that > is a 104-mile commute (round trip) from my house. The staffing company pays me > and issues my W-2. > > Can I take the mileage as a deduction because of the temporary nature of the > job? > > AnswerProbably not. The IRS has recently been "looking through" these > arrangements and finding the contracting company to actually be the employer. > > QuestionSince I started a new job a couple of years ago, I've been having > too much taken out of my paycheck to cover Federal and state taxes. We're > ending up with a big refund. I'd rather the money was in our pockets throughout > the year. Do I change my W-4 to have less income taxes taken out? > > AnswerYes. There is a worksheet on the form to help you figure the number of > exemptions you are entitled to. Watch your withholding after the change to > be sure you are at least paying in last year's tax. Consider having a tax > advisor help you with this. > > QuestionMy aunt bought a house in December, 1999. She has let my wife and me > live there from that time to the present without charging us rent. If she > wants to sell the house and buy another one, will she be charged tax on capital > gains? What is the rate? > > AnswerSince your aunt never charged you rent, it's questionable whether she > can make a tax-deferred exchange for the residence. Since she never lived > there, it won't qualify for the exclusion for the sale of a principal residence. > > The maximum federal income tax rate that applies to long-term capital gains > is 15%. State taxes can also apply. In California, net long-term capital > gains are taxed at the same rate as other income. If she lives in a different > state from the one where the residence is located, she may be required to file > income tax returns in both states. Your aunt should consult a tax advisor > about her situation. > > QuestionI was seriously injured on my job and won a settlement. They also > have to pay my medical bills for the rest of my life. Do I have to pay income > taxes for the award? It is for a physical injury. > > AnswerNonpunitive damages and other amounts received for personal injuries > are excluded from taxable income. (IRC Section 104(a)(2).) Punitive damages > are taxable, even when they relate to a physical injury. > > QuestionMy wife for 5 years is Russian and our daughter is still in Russia - > a full time student and ill. We are sending $2,000 per month for her > support, school and medicines. She has no other income. Can any of this be deducted > on our joint US income tax return. > > AnswerIn order to qualify as a dependent, the child must be a citizen, > national or resident of the United States, or a resident of Canada or Mexico at > some time during the calendar year in which the tax year of the taxpayer > begins, or an alien child adopted by and living with a U.S. citizen or national as > a member of his or her household for the entire tax year. (IRC Section > 152(b)(3).) It doesn't appear your daughter will qualify for a dependency exemption > or medical deductions unless you bring her here to live with you or > otherwise meet the requirements. (Also, remember full-time students only qualify if > they are under age 24 at the end of the calendar year.) > > 7:34:31 PM

> Ford Escape qualified for tax break. > > The IRS has certified the 2005 Ford Escape sport utility vehicle as a hybrid > gas-electric automobile eligible for the clean-burning fuel deduction. (IR > 2004-147.) The deduction is up to $2,000 for tax years 2004 and 2005. This is > the first SUV model and the first vehicle manufactured by a U.S. company to > qualify for the deduction. > > 7:34:29 PM