Tax questions

April 15, 1999

Today is the last day that members of the Maryland Association of Certified Public Accountants are answering readers' tax questions.

My son worked part time for a restaurant and earned approximately $700. He got a W-2 but it shows that the only withholding was for Social Security taxes and Medicare tax. Do I need to file a 1040EZ form for him since no taxes were withheld?

No. Your dependent son is not required to file a 1998 tax return since his wages were only $700, and he had no other income for the year. His earned income (wages) would have to exceed $4,250 in order to be required to file.

Howard D. Jacobs, CPA

I sold a unit investment trust after holding it for four years. During that period I was directly paid dividends and capital appreciation. How do I treat this on my return?

You need to determine your tax cost (basis) in this investment and report the sale as a long-term capital gain on Schedule D of your tax return. Your basis is computed by subtracting from your original cost of the investment the distributions paid to you that were classified as "return of principal" payments.

Distributions paid to you during the four-year holding period classified as dividends or capital gains do not affect your basis because they were not reinvested in additional shares of the unit investment trust.

Any amounts paid to you as "return of principal" were not taxable to you when received and are deemed to be a return of your original investment and, therefore, reduce your basis.

John P. Abosch, CPA, KAWG&F P.A.

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

Pub Date: 4/15/99

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