April 15 is less than two weeks away. This week's Tax Forum has more trading issues, a home sale dilemma and another IRA rollover issue.
And if you haven't taken our
tax quiz yet, be sure to check it out! We'll post the results on Tuesday, so test your tax knowledge and see how you measure up against other
Remember to send your last-minute questions to
firstname.lastname@example.org, and please include your full name. Hang in there!
I Trade for My Mom
I'm placing orders for stock purchases for my mother. I have a durable power of attorney and believe the stock market will afford her better interest than the money market or certificates of deposit she's had. What does that make me? The security account is in my name, but I am in the process of transferring it to her name, and no sell orders have been initiated as of yet for any of the stocks. -- Ann Smith
As long as the account is in your name, the income or losses you generate must be reported on your tax return, says Gail Winawer, tax securities partner at
American Express Tax & Business Services
in New York.
But once the account is in your mom's name, you don't have to worry as long as you're not taking any money from your mom, says Jim Calvin, an investment management tax partner at
Deloitte & Touche
in Boston and editor-in-chief of the
Journal of Taxation of Investments
. You're essentially helping your mom out.
If your mom is paying you to trade her account, that fee should be reported on
- Profit or Loss from Business
, says Ted Tesser, a certified public accountant in Boca Raton, Fla., and author of
The Trader's Tax Survival Guide
. Then you can offset that income with any related expenses you've incurred while trading her account.
Married Folks With Single Homes
Let's say two single people, each having lived in his or her own home for 10 years, got married in 1998, sold the two homes (after they were married) and bought a home together. Would both home sales qualify for the $500,000 exclusion? -- Robert Ward
To start, a house must have generated a gain of more than $250,000 for the issue to arise in the first place, says Christina Tomeo, a tax manager at
in New York. Thanks to the new 1998 laws, if the gain was less than $250,000, you do not have to report a thing.
Assuming the gain on either house was greater than $250,000, you must then look at several other factors for each home, says Martin Nissenbaum, national director of personal income tax planning at
Ernst & Young
Let's take your home as an example. As long as it was your principal residence and you owned it for two of the last five years, you will not owe tax on the first $250,000. Your wife must apply the same rules to her house. See a previous
Tax Forum for more on the new home sale rules, and check out the
Internal Revenue Service's
- Selling Your Home
If you do have a gain to report, you must use
- Sale of Your Home
. If you both have gains and you file jointly, you must file separate Form 2119s, one for each house, notes Nissenbaum.
IRA Rollover by Hand
In 1998, I withdrew some money from my IRA, which was a direct 401(k) rollover, and then returned the full amount within 60 days. When I received my year-end tax information from Charles Schwab, the withdrawal was listed as a 1099 distribution even though I returned the full amount within 60 days. I asked for documentation on Schwab's letterhead stating that the amount was returned. Schwab says it doesn't send any documentation, either to me or the IRS, stating that the money was returned. I was told to include my monthly statements, showing the money coming in and out, with my 1040. I am concerned the IRS will not be satisfied with only my statement and that this could possible expose me to a tax audit since I would not be paying the 10% penalty nor claiming the amount withdrawn as income. -- Mirek Niemynski
If you are confident that you returned the money to your account within the specified 60-day period and you have your monthly statements to prove it, then just report the original distribution on line 15a of your Form 1040. Since you've returned all the money in the allotted time, you should not owe tax on the distribution. So put "zero" on line 15b.
Here's a small warning: Since all the IRS knows is that you took a distribution from the account (but not that you put the money back), you may get a computer-generated notice from the IRS asserting that you didn't report your IRA distribution and that you now owe taxes and penalties on the amount, says Rande Spiegelman, personal financial services manager at
. Don't worry about it. Just respond to the notice and include a copy of your monthly statement showing the date the money went back into the account.
Retiree Starts New Career
Do you know of any cases involving attempts by retirees to be classified as day traders by the IRS, and, if so, how they were resolved? I'm wondering about a situation where a retiree meets all the criteria you have listed for day-trader status, except possibly one: Assuming the retiree has built up retirement account reserves on which he expected to live, it might be arguable that the retiree is not dependent on day trading for his or her livelihood. On the other hand, one is not required to tap one's retirement accounts until age 70 1/2, and in any event, it's possible that the minimum withdrawal amounts are well below the accustomed standard of living. So I'm postulating cases where the retiree has taken up trading for income. -- David Anderson
Being retired doesn't have anything to do with your trader status. If you believe you meet the criteria for claiming trader status, then go ahead and do it. See our
Taxes For Trader series for more on the requirements to claiming trader status.
In addition, taking minimum distributions from your IRA at 70 1/2 should not affect your status, says Tesser.