Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 20, 1995 TAG: 9503200005
SECTION: MONEY PAGE: A-8 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
A: Nurses and sitters who work through an agency are not considered your household employees, and you are not responsible for payment of their FICA (Social Security) or Medicare taxes. These individuals are considered employees of the agency where they work.
Sitters and nurses will be considered your household employees if they do not work through an agency and you control what they do and how they do it.
Beginning in 1994, wages paid to household employees are subject to Social Security and Medicare taxes only if you pay the employee $1,000 or more for the year. For 1994 only, a W-2 form must be filed if wages were less than $1,000, but $50 or more in any calendar quarter. The 1994 wages subject to Social Security and Medicare are reported on Form 942. For 1995 these wages will be reported on your annual 1040 form.
From the sound of your question, it appears that you are trying to avoid having to be responsible for all of the tax filings. If this is the case, you should consider using an agency. However, this will be more expensive, because the agency is paying the employee's taxes and is filing all of the tax papers.
-Answered by Deborah Mattern of Budd, Ammen & Co.
Q: In June 1994, I purchased 250 shares of Media Vision Tech Inc. for about $4.50 a share. The company filed for bankruptcy later that same year. The value of the shares declined from that point on. Recently I received my January brokerage statement, which stated that these shares were CXLD and deemed worthless effective Dec. 30, 1994.
So even though these shares are no longer traded and I can't sell them, can I count these as a loss in 1994 against capital gains that I have?
A: A taxpayer is allowed to deduct as a capital loss the cost of a publicly traded stock that has become completely worthless. No deduction is allowed for partial worthlessness or for a decline in value. The loss is deductible on the last day of the tax year during which the stock becomes completely worthless.
The burden of proof is on the taxpayer. Taxpayers must be prepared to show that the stock became worthless in the tax year for which they claim the deduction and should also be ready to identify the event or events establishing worthlessness. An event indicating the worthlessness of stock is one which would clearly indicate to a reasonable person that, under the circumstances, no probability exists of realizing anything of value from the investment. The bankruptcy filing and share cancellation, coupled with the brokerage house opinion of worthlessness, appear to adequately satisfy the requirements allowing a capital loss deduction in 1994.
To alleviate the burden of proving worthlessness, many brokerage houses will purchase stocks with no ascertainable value for a nominal amount. This courtesy service allows taxpayers to report the transaction as a sale.
-Answered by Clark M. Cole of Cole and King
Q. My husband and I are not required to pay income tax this year, but we are entitled to a refund; therefore, I mailed our tax return form early in February.
On Feb. 18, we received a letter from SCI Virginia Funeral Services stating the following regarding our prearranged funeral services:
``The Internal Revenue Service requires that income earned on trust deposits for prearranged contracts must be allocated and reported to the individual purchaser on a Grantor Tax Information Letter as the income is earned.''
The letter goes on to say the grantor letter will not be completed and ready for distribution until March 31.
What effect will the timing of this grantor letter have on our situation? Will it have any impact on our filing?
We signed and paid for the prearranged funeral services on Aug. 18, 1994.
In the future, how would this be reported on income tax forms? Incidentally, we have received no income from the trust account.
A: When a taxpayer contracts with a funeral home for prearranged funeral services, the IRS treats the buyer as owner of a grantor trust because you have the power to revoke or cancel the arrangement.
The income, usually interest, earned on the money deposited with the funeral home should be included in your gross income. You should file an amended tax return and include the amount reported to you from the Grantor Tax Information Letter. The letter should state the type or income (i.e., interest, dividends, etc.) You should report it on Form 1040, Schedule B, for interest and dividend income.
-Answered by F. Fulton Galer of McLeod & Company.
by CNB