 |
I am the executor of an estate. About $11,000 in a 401K plan was paid
to me as beneficiary. Do I pay income taxes on this amount?
 |
|
 The money is part of the
decedent's gross estate for estate tax purposes. Whether or not estate taxes are owed
depends on the size of the estate and the decedent's federal estate tax exemption at the
time of death. Under the "income with respect to a decedent" rules, you are
taxed on the income as you receive it and must report it on your tax return, but you are
entitled to a deduction for a portion of any estate-taxes paid attributable to the 401(k)
proceeds. If the estate paid no taxes, then you do not receive a deduction.
|
|
|
If a foreign
resident visits the U.S. for fewer than 183 days, but has a closer connection to another
country, then sells stock, will profits be taxable?
|
|
It depends on whether you are a
resident of the U.S. for tax purposes. If you meet the mechanical tests for residency (the
physical presence test) then you are considered a U.S. resident unless you can prove that
you have a closer connection to another country. The closer connection test is a
"facts and circumstances" test applied to each individual's unique situation.
There is no bright-line to determine this and IRS will not rule on whether one meets the
test. Therefore, you should assume you are a U.S. resident for tax purposes if you meet
the physical presence test (generally, 121 days per year in the U.S. but determined on a
formula).
|
|
|
May I claim my 9 year old son as a dependent on my tax returns even though
he does not live in my house. His father unlawfully kidnapped him to another country, but
I have sole custody through the courts.
|
|
You may be eligible to claim an exemption for a
child even if the child has been kidnapped. However, both of the following statements must
be true and in your case, the child was kidnapped by his father: (1) The child must be
presumed by law enforcement authorities to have been kidnapped by someone who is not a
member of your family or the child's family; and (2). The child must have qualified as
your dependent for that part of the year before the kidnapping. If both statements are
true, the child is treated as your dependent and you qualify to claim the exemption. This
treatment applies for all years until the child is returned. However, the last year this
treatment can apply is the earlier of: (1) the year there is a determination that the
child is no longer alive, or (2) the year the child would have reached age 18. |
|
|
A contractor defaulted on a contract for an addition to our home after
receiving a deposit of $14,000. He then promptly declared bankruptcy. May I deduct
all or any part of this loss on form 1040?
|
|
If the facts amount to a theft loss, then you
can deduct it; otherwise, the cost is added to your basis in the home and is recovered
upon sale of the home. However, most home sales are tax exempt under the new residency
exclusion rules. The residence exclusion ($250,000 for single and $500,000 of joint
filers) applies, in general, if you live in and own your home for 24 of the 50 months
prior to selling your home.
|
Inheriting a 401(k) distribution
