Our experts are Jim Dupree of the Maryland office of the Internal Revenue Service in Baltimore and, this week, Nicole M. Harrell, head of her own accounting firm in Baltimore.
Jim Dupree is the Maryland spokesman for the Internal Revenue Service. He has been employed with the agency since 1983.
Nicole M. Harrell
Nicole M. Harrell, a certified public accountant, is the principal of an accounting firm bearing her name in Baltimore. She is a graduate of Hampton University in Virginia and is a member of the Maryland Society of Accountants and the National Association of Black Accountants.
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For tax year 2002, I overfinanced my Roth IRA. I withdrew the overfunded amount, $1,800, in February 2002, claiming it as a distribution on my 2002 return (without a 1099). This year, I received a 1099 for the distribution. Do I claim the same $1,800 on my 2003 return or just ignore the 1099?
Dupree: Cal, I don't see why the contribution itself would be considered an excess contribution in either year, since you pulled it out before filing your return for that year -- and assuming you also pulled out any earnings attributable to it. Those earnings would be taxable.
Here is why, from IRS Publication 590, "Individual Retirement Arrangements." You might want to check with the administrator of your Roth account to ask why this was reported the way it was:
"Withdrawal of excess contributions. For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made."
Harrell: You should not ignore the Form 1099 you received in 2003 for the distribution from your Roth IRA.
This information has not only been sent to you but also is reported to the Internal Revenue Service. The agency will not immediately understand the situation and expect to see the distribution on your 2003 tax return. If you did include the distribution on your 2002 tax return don't show it again but instead send a letter to the IRS explaining that you received the 1099 for the wrong year and that you have included the overpayment in 2002.
With the letter, be sure to include other information showing the distribution actually occurring in 2002 (investment statement and a copy of your 2002 Form 1040, for example). You also should contact the company managing your IRA account and request a corrected 1099 that shows the distribution occurring in 2002.
I understand that charitable donations to both the Salvation Army and United Way are limited to "50 percent of [adjusted gross income]." What does that mean? How much am I able to deduct on my taxes?
Dupree: Michael, if your total contributions for the year are 20 percent or less of your adjusted gross income, you don't have to worry about anything. Your adjusted gross income is the figure on Form 1040, line 34.
In general, the amount of your deduction is limited to 50 percent of your adjusted gross income, but may even be limited to 30 percent or 20 percent, depending on the type of property you give and the type of organization you give it to.
The 50 percent limit applies to the total of all charitable contributions you make during the year. This means that your deduction for charitable contributions cannot be more than 50 percent of your adjusted gross income for the year. The 50 percent limit is the only limit that applies to gifts to "50 percent Limit Organizations."
These organizations are what most people think of as charities, and the organization itself can tell you if it is a "50 percent" organization. But there is one exception. A 30 percent limit applies to these gifts to 50 percent organizations if they are gifts of capital gain or property for which you figure your deduction using fair-market value without reduction for appreciation.
A 30 percent limit applies to these gifts: