New Mexico News
| Where Did Your 'Stimulus' Payment Go? |
| Posted by () on May 21 2008 at 8:00 PM |
YOUR TAXES: Taxpayers are beginning to receive their “economic stimulus” payments. Figuring out how to receive this payment has led to more IRS guidance than I can recall for any other tax issue.
The latest advice comes in IRS Announcement 2008-44, which explains what to do if your stimulus payment was directly deposited into an account other than your “regular” checking or savings account.
Taxpayers who receive 2007 tax refunds have a choice between applying the refund to their 2008 estimated taxes, receiving a paper check from the IRS, having the refund directly deposited into one account at a financial institution, or having the refund directly deposited into as many as three accounts at one or more financial institutions.
The direct-deposit option may include a deposit to a savings account, a checking account, a traditional IRA, a Roth IRA, a health savings account (HSA), an Archer medical savings account (MSA), a Coverdell educational savings account (ESA), or a qualified tuition plan (Section 529 plan).
If you did not receive a refund, or you elected to receive a check for your refund, or you chose to deposit your refund in more than one account, your stimulus payment will come in the form of a paper check.
If you chose to direct deposit your 2007 refund to a single account, your stimulus payment will be directly deposited into that same account.
That's a long introduction to a simple question. What happens if your stimulus payment goes to an IRA, a Section 529 plan, or any of the above-listed deposit options, but that is not where you want it?
Normally, it would be a tax reporting headache to withdraw the money from the wrong account.
The IRS has announced a short-term solution. Just take the money out and the IRS will explain how to report the withdrawal later.
You can take the money out any time before the due date of your 2008 tax return — normally April 15, 2009, but as late as Oct. 15, 2009, if you extend your return.
So let's say your stimulus payment is $600, and you chose to deposit your 2007 refund into your traditional IRA. The stimulus payment will go to the same IRA. You don't want to make a 2008 IRA contribution, so you want your stimulus check removed from the IRA.
You may now have as long as 17 months to take the $600 out of your IRA with no tax effect (if you extend the 2008 return). Your IRA custodian won't know what you're up to, so the custodian will have to report an IRA distribution (which does have a tax effect).
IRS will then have to provide instructions for the 2008 and 2009 tax years (I think both, because the distribution could occur in either year and the custodian will report the distribution in the year made), and perhaps a separate line on the tax return, itself, to allow you to explain what the $600 distribution was.
It seems to me that one or two taxpayers might not correctly report this deposit distribution. Another one might even forget to take the money out on time. There may even be people who have a hard time understanding IRS instructions.
The confused or forgetful will then have one more chance to hear from the IRS — in one of those official letters that make the hair on the back of your neck stand up — about their stimulus payment. They might even have to hire a tax specialist to sort out the problem.
Hopefully the bill won't exceed $600.
Q: I had to pay interest on a 2005 tax deficiency for my personal tax return. Can I deduct this interest?
A: No. Personal interest is not deductible, and your payment is for a personal obligation.
Some people have claimed that all or a portion of the interest could be deductible as business interest if the tax deficiency relates to business income. The Tax Court now agrees with the IRS and many appellate courts that the interest is not deductible because it relates to a personal obligation.
The answer is different if the business is in a separate entity, such as a corporation.
James Hamill, CPA, Ph.D., is director of Tax Practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at Jimhamill@rhcocpa.com
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