ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, March 11, 1996 TAG: 9603130009
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: TAX QUESTIONS
Q: My spouse works as a rural mail carrier and is also an officer for State Rural Mail Carriers Union, traveling to local, state and national conventions. She incurs out-of-pocket expenses for gas, meals and lodging, for which she is reimbursed approximately 50 cents on the dollar by the state union.
We received a "1099 misc" from the union showing $500 as other income for these reimbursed expenses. I have consulted the best CPAs I could find who give free advice and was told I must show the $500 as "other income" on line 21 of my 1040 and take my deductions on Schedule A. Since we don't itemize, we would not file a Schedule A and, therefore, lose the deductions. I think this is unfair and feel I should take a $500 deduction on line 30 of the 1040 to offset the "income" or, better yet, consider my spouse in the business of public speaking and show the income and expenses on Schedule C and claim a business loss for the year. Are the CPAs correct, or is this a case of you get what you pay for?
Also, is there any way we could account directly to the union and not get a 1099 at all?
A: Publication 525 issued by the Internal Revenue Service states the following:
"Reimbursed Union Convention Expenses: If you are a delegate of your local union chapter and you attend the annual convention of the international union, do not include in your income amounts you receive from the international union to reimburse you for expense of traveling away from home to attend the convention. You cannot deduct the reimbursed expenses, even if you are reimbursed in a later year. If you are reimbursed for lost salary, you must include that reimbursement in your income as wages."
This is a special provision for unions and would apply to state conventions as well. |-Answered by Harry Schwarz of H. Schwarz & Co.
Q: I have a single-premium deferred annuity policy that will begin to pay a monthly annuity soon. How do I report the gain (interest) received in those payments? The annuity has been accumulating tax-deferred interest for almost 10 years.
A: Reporting of the single-premium deferred annuity has become relatively simple since 1992. Since 1992, annuity companies have been required to report on 1099-R the amounts you need for your income tax return. On this form, the company will report the total distribution you have received during the year and the net taxable portion of the distribution. They determine this amount by what is called the "General Rule."
If your annuity is eligible for what is called the "Simplified General Rule," the 1099-R also will include your total cost of the plan in box 9b. In preparing your return, you would report the total distribution on line 16a of your form 1040 and the taxable portion on line 16b.
Even though the annuity company has determined your taxable portion on the 1099-R, you may be eligible for the "Simplified General Rule." This method of determining the taxable portion of the annuity may reduce your tax.
To be eligible, you must begin receiving your annuity after July 1, 1986; the payments must be from a qualified employee plan, qualified employee annuity or a tax-sheltered annuity; the payments must be for your life or for the lives of you and your beneficiary; and when the payments begin, you must have been under age 75 or be entitled to less than five years of guaranteed payments. If you meet these qualifications, you may use the "Simplified General Rule."
Under this method, the IRS provides a table based on your age at the start of the distribution. You divide the cost of your annuity by the value per the table and multiply the result by the number of months you received the annuity.
For example, if you are 60 years old when you begin receiving an annuity for which you have invested $24,000, your tax-free portion of the annuity would be determined as follows, assuming you began receiving the distribution in the month of June: $24,000 of cost divided by the factor from the IRS table for a 60-year-old of 260, times seven months of annuity received. ($24,000/260 $92.31 times the seven months $646.17 of exclusion.)
You then subtract this amount from the gross distribution reported on your 1099-R to determine the taxable portion. Compare this taxable amount to the amount shown on your 1099-R and report the lower amount on form 1040 line 16b.
Under the "Simplified General Rule," you may not exclude more than your total cost in the annuity. Therefore you must keep a running total of amounts excluded from year to year. Once you have excluded your total cost, all future receipts are 100 percent taxable.
The table for age factors for age at annuity starting date is: age 55 and under, 300; age 56-60, 260; age 61-65, 240; age 66-70, 170; and age 71 and over, 120.
- Answered by Richard J. Beason of Richard J. Beason, CPA.
LENGTH: Medium: 89 linesby CNB