Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.
Q: I just did a cash surrender on two life insurance policies. Is the money that I get from those required to be reported as income? If so, will I receive something from the insurance company telling me that?
A: Money received when cashing out an insurance policy is a reportable item. Whether it is subject to tax depends on your tax basis [cost] in the policy. If the amount received is greater than your tax basis, then the difference is ordinary income, subject to tax. If the tax basis is greater then the amount received, no loss is allowed. The insurance company will usually send a letter stating your tax basis in the amount received, either with the check or by Jan. 31 following the year your money was received. If you have not received this information, contact your agent or insurance company.
Q: When reporting the capital gain from a stock, can you still income average over a three-year period?
A: No. Taxpayers were last able to use income averaging for income tax returns filed for 1986.
The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.
A joint service from The Sun and the Maryland Association of Certified Public Accountants can help you with your tax queries. Association members, all CPAs, will answer questions from readers until April 15. To ask a tax question, call Sundial, The Sun's telephone information service, at (410) 783-1800. Using a touch-tone phone, enter 6225 after you hear the greeting.
Callers are asked to leave their names and phone numbers should questions need to be clarified. Selected questions will be answered in the Business section. No questions will be answered by phone. Names and numbers will not be published.