Tax Answers

March 24, 1994

Here are answers from members of the Maryland Association of Certified Public Accountants to readers' tax questions. The Sun will publish answers through April 15.

Q: I got a notice that I received interest of about $20 on my mortgage escrow account after I had prepared and sent in my income tax return. A lot of people have told me that for $20, forget it. I keep thinking that the government would come back even for a small amount and say you should have filed this. Should I file an amended return?

A: You are required to report all of your income that is subject to tax. Even the IRS instructions for Form 1040 state that all taxable interest should be reported. Here are some practical points: First, you may not incur any additional tax because of the extra $20 interest, but to avoid a possible IRS notice some time in the future, you should amend the return. Second, if you prepared your own return, then amending it will only cost you a little time and postage. It's a good idea to wait three or four weeks after you file the original.

Q: Can I deduct the foreign tax paid on dividends of a foreign stock, held as ADR, that is being held as part of a SEP IRA?

A: No, because you hold the investment in a retirement plan. The only expenses currently allowed for deduction for an IRA are separately billed trustee or administrative expenses. But, note that the foreign tax reduces the account balance in the SEP IRA which reduces the distribution you receive in the future and are taxed on.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary. Consult with a tax adviser for specific advice.

Readers may submit questions by phone, mail or fax. Selected questions will be answered in The Sun and The Evening Sun.

To ask a tax question by phone, call Sundial, The Sun's telephone information service, at (410) 783-1800. In Anne Arundel County call 268-7736, in Harford County 836-5028, and in Carroll County 848-0338. Using a touch-tone phone, enter 6120 after the greeting.

Written queries may be sent to TAX QUESTIONS, The Baltimore Sun, Business News Department, 501 N. Calvert St., Baltimore 21278. Fax questions to the Business News Department at (410) 783-2517.

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