Tax Q&A

Your Money

March 12, 2006

IWORKED FOR A COMPA — Baltimoresun.com's tax advice column features three experts from the Hunt Valley accounting firm SC&H Group answering questions about preparing your return. Here is an edited excerpt of this week's column:

I worked for a company that filed for bankruptcy. When they filed, they owed me 20 days of vacation. I filed a claim as a creditor. I have been notified by the court that the company never came out of bankruptcy. Can I claim this as a loss, as the debt will never be paid?

- Barbara, Baltimore

Individual taxpayers file on the cash basis method of accounting. Since you did not include any of the accrued vacation in your income in previous years, you do not get a bad debt or other deduction for the lost income.

Is Catholic school tuition tax deductible?

- Julie, Pasadena

Private school tuition continues to be nondeductible for income tax purposes. There are several tax-favored ways to save for and fund such expenses (education savings accounts, trusts, Uniform Transfers to Minors Act accounts), but no federal or Maryland deduction is allowed.

I cashed in the total amount of mutual funds in 2005 that were all purchased in 1997. The 1099-B forms did not give me a starting cost, but did let me know whether I had a loss or gain in the total amount received. I am at a loss on how to report this information on Schedule D.

- Julie, Chicago

You will need the cost basis of the security in order to properly report the sales and to avoid paying unnecessary gains. Many Forms 1099-B do not provide the cost basis of the security sold.

You could contact your broker or the mutual fund company to determine if they have any records regarding your tax basis.

Additionally, if you receive monthly statements for your account, you could review the statement for the month in which the funds were sold. The cost basis may be provided in the sale transaction detail.

You should also consider dividends that were reinvested into the mutual fund, as they would increase your basis.

Is there a deduction line where I can report a cash gift that I had given my grandchild?

- Lucille, Reisterstown

Gifts to individuals are not deductible. If you have made a gift to one or more individuals for more than the annual exclusion amount ($11,000 per donee for 2005), then you should consult your tax adviser regarding the possibility of needing to file a gift tax return.

To submit a question or read the columns online, go to www.baltimoresun.com/taxtalk.

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