Press - questions and answers
Q I have a trust fund I recently
came into from my father after he passed away in March 2004.
It's over $90,000. My husband and I have credit card debt of
$20,000. I'd like to take some of the money to pay off our debt
since we pay high interest on it. What would be my tax liabilities
if I did this? And would I then pay a lot in 2006 on my tax
return for doing this in 2005?
A The tax owed on a distribution
of trust principal depends on whether the distribution is unappreciated
principal, long or short- term capital gain, or ordinary income.
The type of distribution appears on the K1
form, which by law must be sent to you annually by the trust
If the distribution is unappreciated principal,
there's no tax liability. If it is long-term capital gain, it
is generally taxed at 15% (if you are in the 10% or 15% marginal
tax bracket, the gain will be taxed at 5%).
If it's short-term capital gain or ordinary
income, the distribution will be taxed at your ordinary income
Q I did not work in the year
2004. I show no income. I have no interest from accounts in
any bank. I went to Atlantic City one day and hit $1,500 on
a slot machine. They did not take any taxes out of the $1,500.
Do I have to claim any of those winnings since it was reported
to the IRS. The casino did send me a tax statement of the winnings?
Generally, at what level are winnings reportable?
A It is generally better
to file even if there is not enough income for a return to be
required. Once a tax return is filed, the three-year statute
of limitations will start to run.
If no return is filed,
the statute never begins running and the IRS could potentially
come after you many years later for taxes you didn't realize
had been due, plus interest and penalty.
The statute of limitations on the IRS examining
your return and assessing additional tax is generally three
years from the date the return was due or filed, whichever is
A single person under 65 must have gross income
of at least $7,950, or $9,150 if they are 65 or older. For a
married couple filing jointly they must have gross income of
at least $15,900 for an individual, $16,850 for one spouse over
65 or $17,800 if both are over 65.
Q How I can use my losses
and winnings from the lottery in taxes? Is there some limit
or what should I do if my loss is bigger than my win last year?
And by doing this, do I have a bigger chance for an audit? I
keep all my non winning tickets and evidence of wins.
A Gains from lotteries are
includible in gross income. Losses are deductible only to the
extent of winnings, so you can't deduct more than you won.
These losses may only be taken as a miscellaneous
itemized deduction not subject to reduction by 2% of your adjusted
You must keep a log or diary of winnings and
losses and all unredeemed lottery tickets. You may be at a slightly
increased risk of being audited.