How Closely Does the IRS Track IRA Deposits?
We have a smorgasbord of tax issues this week. A few readers have expressed some skepticism about the Internal Revenue Service's ability to keep track of IRA contributions. It's not a good idea to underestimate the IRS. We'll also discuss whether traders can deduct health insurance premiums. And we'll look at how to "share" Form 1099.
Please send any other questions to
Tracking IRA ContributionsHow does the IRS confirm that taxpayers have actually made IRA deposits when they claim a deduction for them?
-- William Kendrick
William,Every time you make a contribution, the company holding your IRA -- your broker or mutual fund company -- has to report the amount to the IRS. So if you don't report the contribution, the company will anyway. Even so, you still have to report your contributions on your tax return. Deductible IRA contributions are reported on line 15 of your
Reporting Options TradesWhy doesn't the IRS require brokerage firms to report option transactions? -- Nilesh Thakker Nilesh, Who knows? "That's a question I am asked often, but I have no idea why not," says Ted Tesser, a CPA in Boca Raton, Fla., and author of
Insurance Deduction for TradersSelf-employed individuals have had the opportunity to deduct increasing amounts of health insurance premiums from earned income under recent tax law. Since trading income is not "earned income" for some purposes, do you know whether a trader can take a deduction for health insurance? -- Dan Jones Dan, It's important to note that nothing has been written on this topic. But based on interpretations of current law, if you elect trader status, you can't take a self-employed health insurance deduction, says Tesser. When you elect trader status, your income is treated as ordinary income, not self-employed income. "How can you deduct self-employed health insurance and still take the position that it is not self-employment income? I don't think you can," says Tesser. (For more on claiming trader status, see our
Splitting a Form 1099?On my tax return (married filing separately), I have to report interest that was paid partly to me and partly to my wife. All of it was reported to me on a Form 1099 with my Social Security number. But my wife is responsible for paying tax on half of this income. How should I report this, for example, on Schedule B? -- Richard Buck Richard, This is not a problem. You simply must show a little extra work on your
Extra Stuff from My BrokerI just received my Form 1099 from Waterhouse, and for the first time, it includes all sales and purchase activity. Is this just for my benefit, or do I have to send the full form with my tax return? -- Jack Moolick Jack, This time of year, you'll be getting lots of documents in the mail. The trick is to determine what you need for your tax return and what's just "extra stuff" for your files. In your case, I think the additional document you're referring to is a detailed income statement Waterhouse Securities sent to all its customers along with Form 1099 for the first time this year, says company spokeswoman Melissa Gitter. The statement contains a recap of all transactions you made during 1998. You do not have to send the statement in with your tax return.
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