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Tax & Filing News

Changed Your Name? Better Tell the Social Security Administration

More Do-or-Die Reminders

Did the IRS Get My Tax Return?

I Forgot to Include My W-2!

Investing & Taxes

Can I E-File Homemade Schedules?

How Exactly Do I Defer My Loss On A Wash Sale?

HOLDRs and the Wash Sale Rule

Covering Calls Again

When Does My Holding Period Start?

Taxes For Traders

How Do I Elect Trader Status?

Trader Trying to Track His Trades

Traders and Tax Software

Homes & Taxes

Returning to the Vacation Home

Returning Can I Sell My House for a Buck?

Cross-Country Home Owners

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TheStreet Recommends

Marriage & Taxes

I'm Separated. Can I Be Single?

Kids & Taxes

Helping an Unborn Child With College

Gifts to the Kids

Roths for Teens

IRAs, Roths, & 401(k)s

Hedging in an IRA?

Trading in IRA, Take Two


Does IRA Rollover Count in AGI?

Roth Contributions Tanked

What Do I Owe Taxes On?

Can I Convert My SEP IRA to a Roth?

Loans and Rollovers

IRAs, Roths, & 401(k)s

An Inherited House Full of Taxes

Changed Your Name? Better Tell the Social Security Administration

Does your name match your Social Security number? If you changed your name without notifying the

Social Security Administration

, it most likely does not.

If it doesn't, you're probably one of the 2.4 million taxpayers getting a tsk-tsk letter from the IRS telling you to fix the problem before you file your tax return in April. If you don't rectify it, your refund may be held up or you may be denied either the earned income tax credit or the personal exemption a spouse gets when a couple files jointly.

This push is an effort to reduce fraud, although most of the discrepancies involve women who took their husbands' name when they got married, according to the IRS.

The proper documents (i.e. marriage certificates) can be mailed to the Social Security Administration, but they must be originals, not copies. The administration will return them to you when it is finished with them. I advise you go to your local office and take care of it in person.

Check out the Social Security Administration's

Web site for more information.

More Do-or-Die Reminders

Check out the



transcript between Martin Nissenbaum, director of income tax planning at

Ernst & Young

and me for more advice on these issues. Special thanks to those of you who joined us.

Also, here are a few more do-or-die reminders to help you get your 1999 tax return in by midnight Oct. 16.

E-File away.

You can still electronically file your tax return. Most e-filing sites are available until midnight Oct. 16, so check out our

Guide to Online Tax-Filing Sites to determine which one is right for you.

Hint: Be sure your name matches the one on your Social Security card; otherwise you can't electronically transmit your return.

Use your credit card.

You can call 888-2PAY-TAX and charge your 1999 tax payment on

American Express





, though you'll pay a "convenience" fee.

The fee averages 3% to 4% of your payment. Check out Official Payments'

Web site for the complete payment scale.

If you file electronically using


TurboTax software programs or Web sites, you can charge your tax bill using your Discover card only.

For more on credit card payments, see

Charging Your '99 Taxes. And check out this earlier

Tax Forum on filing late for some good charging tips.

Roth revisted.

At this point, you cannot make an IRA or Roth IRA contribution for 1999. The deadline for that was April 17. (April 15 was a Saturday this year.)

But if you opened a Roth IRA account or made a Roth IRA contribution for 1999, make sure you still meet the adjusted gross income limitations. If you now realize you've exceeded those limits, you have until the time you file your tax return to recharacterize that Roth IRA account or contribution. See the

Roth IRA Tax Reporting Guide for tips.


If you still owe money, make your check or money order out to the

U.S. Treasury

, not the IRS.

If you entered a smoking cessation program in 1999, you can deduct the amount you paid for the program, and any prescribed drugs to treat nicotine withdrawal, as a medical expense. However, you cannot include nicotine gum, patches or other treatments that are not prescribed by a doctor.

Remember, you can deduct only the amount of medical and dental expenses that exceed 7.5% of your adjusted gross income. Report these expenses on Schedule A:

Itemized Deductions

, found on the IRS'

Web site. Don't include any medical expenses that were reimbursed by your insurance carrier.

If you entered a smoking cessation program in 1996, 1997 or 1998, you may be able to go back and claim these expenses. Just make sure it's worth your time and effort before you go through the administrative nightmare of amending your tax return.

Did the IRS Get My Tax Return!

I electronically filed my state and federal returns through TaxCut on April 9. The federal was accepted almost immediately. I'm still waiting on the State of New Jersey. What should I do? -- Jon Zoll


Assuming you electronically filed correctly, both your federal and your New Jersey tax returns were transmitted together. TaxCut actually recommends that you e-file this way.

Then your returns were piggybacked and electronically transmitted to the IRS. In this case, your notification of receipt was for both returns. The Service then sent your state return on to New Jersey.

If you got a declaration control number (DCN) indicating your return was accepted by the IRS, make sure you put in on

Form 8453-OL

-- U.S. Individual Income Tax Declaration For On-line Services Electronic Filing

, as well as the New Jersey e-file form and mail them in. It does matter that they're late. "Just send them in," says Don Roberts, spokesman for the IRS.

But if you filed electronically in previous years, you should have gotten an

e-file Customer Number, or ECN. If you filed your tax return using this number, you would not get a DCN. In that case, you're done.

I Forgot to Include My W-2!

I filed as a trader and with over 300 trades, I spent most of my time working on MY taxes. With everything done I was off to the post office and mailed my return by 5 p.m. Just great -- except for one small error. I forgot to include my wife's W-2. Since they owe us a refund I assume that they will not issue it until our return is complete. Is there something special I should do or should I just put it in an envelope with a note and send it off? -- Steve Conklin


If you just forgot to include your wife's

Form W-2

-- Wage and Tax Statement

with your tax return, then don't do a thing. Wait for the

Internal Revenue Service

to contact you.

This is true for any document you forget to attach. Wait for correspondence from the IRS. They may ask you to send the information to an address that is different from where you originally sent your tax return. So sit tight.

Form W-2 details your wife's total compensation and withholding for the year. If you included all of this information when calculating your tax bill and just forgot to attach a copy of it with your tax return, the IRS may be able to figure things out without it. But don't be surprised if your refund is held up until the IRS sees the W-2.

If you inadvertently excluded your wife's W-2 information in your tax return, you should file a

Form 1040X

-- Amended U.S. Individual Income Tax Return

, says Kathy Burlison, an

H&R Block

senior tax specialist. She recommends waiting a few weeks before you send the amended return, to ensure that the IRS has started processing your first return. "You don't want them processing the amended return before the original. It will totally confuse them."

Note that if you generate a balance due with your amended return, interest and penalties will be calculated starting April 17.

Bigger note: Even though your tax return is wrong, you still may get your refund. "Just because you got your refund does not mean that IRS won't challenge that return later," says Burlison.

The IRS runs a few quick checks and tries to get your refund back to you as soon as possible. But it does not receive verified wage information for a few months after the April 17 deadline. The

Social Security Administration

must verify your wage numbers first. Then those numbers are sent to the IRS. It's at that point that the IRS starts fact-checking your return.

So if you know your tax return is wrong, don't spend the money! And be aware that the IRS has as many as three years to ask for it back.

Can I E-File Homemade Schedules?

Regarding attachments to Schedule D, I'd like to file the 1040-PC, since the IRS can scan it, and it should result in fewer typing errors. Can I make a "see attachment" comment if I want to file a 1040-PC? -- David Hoerl


Rather than go through the tedious process of entering scores of trades into a tax software program, you obviously prefer to print out your own schedule of trades and attach it to your tax return. That's OK as far as the IRS is concerned, but you won't be able to file your tax return electronically. A detailed trade statement is not an authorized attachment for e-filing, so the IRS may just discard it. (See this previous

Tax Forum for more on attaching statements.)

By the way, if you file electronically, you're limited to reporting 97 short-term trades and 97 long-term trades on an e-filed Schedule D.

The 1040-PC is basically a condensed version of the

Form 1040

-- U.S. Individual Income Tax Return

that expedites processing because, in theory, it can be quickly scanned. But here's a secret: The IRS never created a system to read these condensed forms. So don't bother. Just use the regular Form 1040, write "see attached schedule" on your Schedule D, attach your schedules and drop it all in the mail.

The IRS has proposed allowing more trades on an e-filed Schedule D for next year, says Eddie Feinstein, vice president of electronic services at

H&R Block


How Exactly Do I Defer My Loss On A Wash Sale?

I had to sell off my position in i2 Technologies (ITWO) at a loss this month to cover a margin call. Now that the market seems to be pulling out of the recent correction, I bought some back. How can I handle this next April? Can you expand your explanation from your " mega-piece", about how the loss is added back to the basis of the repurchased stock? -- Stephen W. Mamber


First, a quick recap on the wash sale. If you buy a stock, sell it at a loss and then buy it back, you're holding the same position in which you started. So economically, your position has not changed. That's why the IRS created the rule that says if you sell a security at a loss, you can't deduct the loss on your tax return if you acquired a "substantially identical" security 30 days before or after the sale.

Let's say you bought one share of i2 Technologies at $163 on March 1. You sold it at $122 on March 31 to cover your margin call. You now have a $41 loss.

But over that weekend you decided to get back in. So on April 3 you bought your share back at $93. You've triggered the wash sale because you bought the stock back within 30 days of the sale. Now you cannot claim that loss on your tax return.

But there's hope. The wash sale rules say that you can add the disallowed loss to the basis of the repurchased stock.

The technical jargon says that the basis of the new stock equals the original price of the security less the difference between the sale price and the repurchase price. So the original share was $163, but here you sold the share at $122. Before the 30-day waiting period was up you bought the share back at $93. The basis in that new share is now the original basis ($163)


the difference between the sale price ($122) and the repurchase price ($93). Your new basis is $134 in this situation. You've just added the $41 loss to the $93 share.

On the flipside, if you had sold the stock for less than the repurchase price, the calculation is a bit different. The basis of the new security will be equal to the basis of the securities you sold plus the difference between the repurchase price and the sales price of the original shares.

Let's say the basis in the old stock was $163 and you sold it at $122. Before the 30-day waiting period is up, you buy the share back at $125. Your basis in that stock is equal to the old basis ($163)


the difference between the repurchase price ($125) and the sales price of the original shares ($122). In this scenario, $166 is your new basis.

Although it looks like you just added the disallowed loss to the new basis, it's recommended that you still walk through this exercise because the numbers are not always this straightforward.

Many thanks to Richard Shapiro, an

Ernst & Young

securities tax partner in New York, for helping with these numbers.

HOLDRs and the Wash Sale Rule

In the recent downturn, I sold several stocks. In every case, there were some shares that were sold at a loss. Can I get back into those stocks using HOLDRs before 60 days without losing the losses? Or is the answer "nice try"? -- Bob Zeek


Nice try. The short answer is: The wash sale rule does indeed apply.

Merrill Lynch's

HOLDRs offer ownership in a basket of 20 stocks through a single investment. A perk to these securities is that you have the option to redeem them (in 100-share lots) and get shares of the underlying stocks in return. (See a recent

Dear Dagen for more details on HOLDRs.)

Since that gives you direct ownership of the stocks, the wash sale rule applies. Even if you don't redeem the HOLDRs, technically you still own them, says Erik Hendrickson, a Merrill Lynch spokesman.

Remember the wash sale rule says that if you sell a security at a loss, you can't deduct the loss on your tax return as long as you acquire a "substantially identical" security 30 days before or after the sale. Read our

mega-piece for further details on the wash sale.

Let's say you sold 100 shares of



, the biotech company that uses human genetic information to develop pharmaceuticals, at a loss. (FYI: If you bought the stock on March 1, your position is down 48.4% as of April 27.)

Instead, you decided to buy 100 shares of

Biotech HOLDRs


(which, by the way, are also down 44.1% over the same period). In this instance, you'd have a partial wash sale.

Here's why. There are 22 shares of Genentech in each round lot of the Biotech HOLDRs. (Check out this

section of the

American Stock Exchange's

Web site for more details.) So the loss on 22 of the Genentech shares you sold would be disallowed.

Keep in mind that the disallowed loss can be added to the cost basis of the repurchased security. In other words, you can add the disallowed loss on your Genentech shares to the cost basis of your Biotech HOLDRs.

But if you redeem the shares of the HOLDRs, you must attach that loss to the HOLDRs' Genentech shares only -- you can't apportion it among all the stocks in the HOLDRs, says Jim Calvin, an investment management tax partner at

Deloitte & Touche

in Boston and editor-in-chief of the

Journal of Taxation of Investments


See this previous

Tax Forum to help you figure out your basis in the HOLDRs after redemption.

Covering Calls Again

Last week, I

discussed the tax implications of writing covered calls, but I didn't address what happens, taxwise, when the underlying stock is called away and the seller doesn't want to give it up. So let's do that now.

First, some review: Calls are a type of option that gives the purchaser the right to


a security at a specified price at a certain time. It's a way of betting that a stock will rise. Investors who sell covered calls are taking the other side of that deal. When they


(or in market parlance, "write") calls, they agree to deliver shares of a particular stock if the buyer of the call exercises his option. The seller, or writer, gets a fee called a premium for taking on this obligation. If all goes well for the writer, the option will expire -- in anywhere from a few days to a year or longer -- and the writer walks away with the premium.

A call is "covered" when the seller owns the underlying stock. But what if those shares are called away -- that is, the buyer exercises the option -- and the seller doesn't want to deliver them?

The seller has two choices, both of which bring up some hairy tax issues. He can buy the option back or go into the market and buy new shares of the stock to deliver to the buyer.

Let's say you sold a $20 call for $3 in premium. That means the buyer has the right to buy the stock at $20 a share. But the stock now is trading at $30. Obviously, the buyer wants to exercise his call, pay you $20 for the stock and pocket $10 in profit. But let's say you originally bought the shares for $2, and you'd rather not generate huge capital gains taxes by selling them now. Or maybe you believe the stock is going to go even higher. Either way, you're holding on.

You can buy the option back, no doubt at a higher price. Let's say you bought it back for $10 and wound up with a $7 loss on the deal. Can you take that loss on your tax return?

No. You cannot declare that loss until you sell your original long position. But you can bank the loss until you do.

Your other option is to go into the market and buy more stock at $30. Your buyer is only going to give you $20 for each of them, though. So you have a $7 loss -- the $10 price difference minus your $3 in premium -- on each share in this deal.

Again, you can't take this loss until you sell your original long position.

It's important to be aware of these implications because "many times investors write calls with no intention of selling the stock," says Rande Spiegelman, a senior manager in


investment advisory services group in San Francisco. "Most people write calls thinking the stock is going to go down. But they have to be prepared if stock goes up."

There's one quirk in the tax laws that allows you to declare the loss on that trade if you wrote a "qualified" covered call. This type of call must have more than 30 days to expiration and have a strike price (the price at which the holder has the right to buy it) that is within $2.50 to $5 of the stock's price on the day it is sold.

The tax rules surrounding options trades are precarious, so be sure to check out

Publication 550

-- Investment Income and Expenses

for more details.

When Does My Holding Period Start?

What would the actual buy date be for a stock that was exercised from a call option? In January, I bought Tibco Software (TIBX) May 20 call options, and in March, I exercised those options. I am trying to figure out what would be the actual purchase date of those shares? Would it be the day I bought the call option or the day I exercised the option? -- Rahul Desai


If you exercise your options and end up with stock, your holding period begins the day after you exercise your options, says Richard Shapiro, an

Ernst & Young

securities tax partner in New York. In your example, the holding period began in March, not in January when you bought the calls.

How Do I Elect Trader Status?

I'm a full-time trader in 2000 and would like to elect trader status on my tax return. Is there a deadline, or do I just elect it on my 2000 tax return when I file? -- Brian Hruz


The only way the

Internal Revenue Service

knows you're a trader is by the way you complete your tax return, so technically, your deadline to file as a trader is the day you file your tax return. Unless you decide you want to mark your trades to market. In that case, then, you must have made the election on your 1999 tax return -- but we'll get to that in a minute.

There are a few distinctions that make a trader's tax return look different from, say, mine.

As an example, trading-related expenses are considered ordinary business expenses and are 100% deductible on

Schedule C

-- Profit or Loss from Business

. Ordinary investors -- like me -- can only deduct investment-related expenses in excess of 2% of their adjusted gross incomes, and they must be reported on

Schedule A

-- Itemized Deductions


For more details on how to make your tax return look like a trader's, check out this

piece from our

Taxes for Traders series.

The other big perk to filing as a trader is the option to elect to mark your trades to market, which allows traders to value their securities as if they were sold for fair market value on the last business day of the year. Making this election also permits traders to report an unlimited amount of losses on Schedule C. (Remember, the rest of us are limited to a maximum of $3,000 in net losses reported on

Schedule D

-- Capital Gains and Losses

.) While this would've been a great year to mark to market, because losses abound, you were required to have made your 2000 election on your 1999 tax return. If you did not make this election in '99, you cannot mark your trades to market in 2000. If you decide you'd like to do so in 2001, remember to make this election on your 2000 tax return in April.

Check out this

column for more details on the deadlines for this election.

Trader Trying to Track His Trades

I am an active trader in a handful of specific stocks. Since I jump in and out of trades within each stock on a daily to weekly basis (including short-selling), I'm greatly affected by the wash-sale rule. I understand how this rule applies to me, but I'm looking for a software program that will simplify my accounting of these wash-sale "losses," including any cost basis adjustments that would apply. Are you aware of any such accounting programs? Are you aware of, or do you recommend any commercially available trader accounting software to simplify tax reporting (able to handle 1000+ trades on an annual basis)? For what it's worth, I am not a professional trader, just an individual who actively trades and is starting to get bogged down in the IRS-required accounting. -- David Garza


I am not allowed to trade stocks so I don't have firsthand experience with your dilemma. But based on readers' emails and my walk through the product,

GainsKeeper may be your answer. Not only can the program handle the wash sale, but the ability to track short sales was recently added, says Bill Beaulieu, GainsKeeper's manager of Web tax solutions. In addition, GainsKeeper allows you to specifically identify which lots you want to sell.

The downside: The program won't be able to track options trades until the end of the year and you can only import data from Excel spreadsheets. If you're currently keeping track of your trades using a different method, you would have to re-enter everything. (Check out

Mark Ingebretsen's


column for more on GainsKeeper.)

As advanced as the standbys, like

Intuit's Quicken


Microsoft Money

, have become, they still can't handle the wash sale.

But readers, please

chime in. If there's a great product out there that we should know about, please let me know. I'll pass the good news on to your fellow readers.

Traders and Tax Software

I'm filing for trader status. I have capital gains and am using TurboTax Deluxe to file my tax return. How do you write the note "Section 475 election to Schedule C" next to the negative amount (to make the balance zero) on Schedule D, line 17? And, how do you write the note "Section 475 election from Schedule D" on Schedule C, line 1. I tried to input the note next to the number on those lines, but it only takes a number. -- Norman Yap


If you are working with a tax preparation software that will not allow you to insert that note, just print it out and write it in by hand. The drawback to printing out your return is that you can't file it electronically -- but this is the case for most traders. (An electronically filed

Schedule D

-- Capital G