Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 21, 1994 TAG: 9403220027
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
A: The law allows you to contribute to several retirement plans. Your contributions must meet certain percentage limits and your total contributions to all plans cannot exceed $30,000.
Therefore, your husband can contribute part of his self-employment (consultant) earnings to an SEP plan. The maximum contribution is 15 percent of ``earned income'' up to $20,500 ($30,000 less the $9,500 that he put into the 403(b) plan).
The 15 percent SEP contribution is based on earned income, which is his net self-employment income reduced by one-half of his self-employment tax AND the contribution to the SEP plan. The contribution to the SEP plan for 1993 must be made by April 15 in order to claim the deduction on your 1993 tax return.
Answered by Melinda Chitwood of Brown, Edwards & Co.
To file or not
Q: I am a retired widow age 71. For the year 1993 I drew $5,724 Social Security after they paid Medicare of $439.20 for me. The total was $6,163.20. I had income from interest and from the company I retired from totaling $8,194.57. Do I have to file income taxes this year for 1993? My total income was $14,357.77. I live alone.
A: The question of whether to file a tax return is a rather common question; however, it is one that confuses taxpayers and may result in an incorrect conclusion. The IRS can impose nonfiling penalties as well as nonpayment penalties for people who do not file a required return. The instruction booklet for Form 1040 gives the gross income threshold for filing requirements.
There are certain items which may or may not be used in determining gross income. You need to determine if the Social Security benefits are to be included in the gross income calculation. Using the worksheet on page 20 of the 1040 instruction booklet, none of the benefits are determined to be taxable because your adjusted gross income is less than $25,000.
Assuming that all of the retirement benefits are taxable and you did not become a widow during 1993, you must file a tax return for 1993. This is because your total taxable income from your interest income and retirement benefits of $8,194.57 is greater than $6,950, the filing threshold for a person over age 65. If the above assumptions were changed, there might be a possibility that you would not have to file a return.
Answered by F. Fulton Galer of McLeod & Co.
Deducting adult care
Q: My husband is a patient five days weekly at the adult day-care center at the Veterans Administration Medical Center. Is this tax deductible?
Assuming your husband attends the adult day-care center because of disability or to receive medical care or therapy, the cost would be deductible as medical expense.
If he cannot take care of himself or cannot be left alone, and his attendance is necessary in order for you to work (or look for work), the expenses may qualify for the dependent-care credit.
You may choose to apply them either way as long as you do not use the same expenses to claim both a credit and a medical expense deduction.
Transportation costs (9 cents per mile if you drive) may be included in calculating medical expense, but not work-related expense.
Answered by James B. Taney of Anderson & Reed CPAs.
Interest on maturing CD
Q: I recently called NBC Bank to ask why I hadn't received a tax form indicating 1993 interest on a one-year CD maturing in late 1994 with compounding.
I was informed that since interest was paid at maturity in 1994, no 1993 interest was taxable. Is this really true?
A: Yes. Interest is taxable to cash-basis taxpayers when paid by the bank or when credited to their account so it could be withdrawn.
Answered by Robert Flynn of Foti, Flynn, Lowen & Co.
Reporting IRA proceeds
Q: My wife was the beneficiary of her father's IRA. He died in 1993. Where on our income tax forms should we record the proceeds from that IRA?
A: Assuming your father-in-law did not make any nondeductible contributions to his IRA, the proceeds your wife received as the beneficiary are fully taxable and should be reported on line 16b of Form 1040.
If the father made nondeductible contributions, you will have to review his prior year returns for the most recent Form 8606 to find the nontaxable IRA basis. This basis will be used on Form 8606 that you will have to complete to determine the taxable portion of the proceeds your wife received.
Answered by Reid W. Ammen of Budd, Ammen & Co.
by CNB