Don't pay taxes on last year's Bush tax rebate
Q: Last year my husband and I received a $600 rebate check from the US government. Do I have to report that as income? When filing my taxes, the tax software that I use is adding that amount to my income and it seems I am getting taxed twice.
J.F.D., Jamaica Plain, Mass.
A: Either your tax software is wrong or you are making a mistake in entering the rebate as income, says a spokesman for the IRS.
The tax rebate "is not taxable income," he adds, so it does not have to be reported on your tax form and you do not have to pay taxes on it.
The Treasury Department added a special line to this year's tax forms - line 47 on form 1040, line 30 on 1040A, and line 7 on 1040EZ - to make certain that qualified taxpayers received their rebates. Those who didn't get a rebate should use this line and the accompanying worksheet to see if they qualify.
The full rebate is $300 for individuals, as well as married individuals filing separately, $500 for heads of households, and $600 for married couples filing jointly.
Q: Is a gift of money from a relative taxable? If so, is there a cap on how much is taxed?
M.C., Franklin, Mass.
A: Donors are allowed to give up to $11,000 annually ($22,000 for married couples) tax free, according to an IRS spokesman. Gifts above that amount are taxable to the donor. Recipients are not taxed on the gifts, but may owe taxes on income produced by the gifts, such as with stock. See IRS publication 950.
Q: One of my mutual funds closed to new investors some months back. Existing shareholders were allowed to make new contributions. I stayed with the fund, even though performance has dropped sharply. As a practical matter, should a person stay with a fund that closes itself off to new investors?
G.F., New York
A: Not always. Funds typically close their doors to new investors because they've become so large that managers struggle to invest new money in productive ways. Studies show that funds often droop after closing, particularly if they have had a large influx of cash.
Also, make sure a fund isn't closing simply to attract new dollars. According to "Chuck Jaffe's Lifetime Guide to Mutual Funds," investors should find out if a fund is closing to protect shareholders, or to reap commissions through increased contributions by those who want to get in before the fund closes. If fund assets stay stable, Mr. Jaffe writes, there is nothing to worry about. Always contact the fund company and ask why a fund is closing.