Question: My 14-year-old son has become interested in the stock market. Last summer he made $500 on the sale of stock. He is in school and had no other income; does he have to file a tax return for 1979 ?
Answer: Congratulations. Your son has done better than a lot of older (and presumably more sophisticated) investors.
Your son has no income tax liability and does not have to file a return for 1979; and you can still claim him as a dependent on your own tax return, since apparently you provided more than half of his support during the year.
A dependent child -- like any other single individual -- must file a return if he has gross income (from all sources) of $3,300 or more. That figure is derived by adding the $2,300 zero bracket amount to the $1,000 personal exemption.
He must also file a return -- regrardless of the amount of gross income -- if he had unearned income (like interest, dividends, or capital gains) amounting to $1,000 or more during the year. He doesn't meet either test, so no return is required.
Q: nFor tax purposes how do I figure the cost of stock bought at a 5 percent discount under a dividend reinvestment plan ?
A: To calculate capital gain or loss on later sale of stock bought through a dividend reinvestment plan, use as the cost basis the market value of the shares bought on the dividened distrubution date.
But there are other tax implications. For those shares purchased for your account with the quarterly dividend, you must report as dividend income the full market value (not the cost to you) plus any service charges. (If you itemize deductions, you can claim the service charges as an investment expense.)
If you make an optional purchase of additional shares at a discount, you must report as ordinary income (or line 21 of Form 1040) the amount of the discount -- that is the difference between the cash you invest and the fair market value of the shares purchased.
Q: We have just bought a large trailer. We plan on selling our house and living full-time in the trailer, traveling north and south with the seasons. Does this qualify us for deferral of tax on the house ?
A: Yes -- you can defer tax on the gain from sale of your house as long as you buy another "principal residence" within the 18-month time period (before or after the sale).
A mobile home, travel trailer, or even a houseboat qualifies as the replacement residence as long as it is your full-time or principal home.
But you may have a problem with the dollars involved. To defer tax on the entire gain, the new residence must cost at least as much as the selling price of the old.
You may qualify for deferral of a part of the tax, depending on the way the numbers work out. Or if you or your spouse is 55 or older, you may be able to exclude up to $100,000 in gain on the sale.
See IRS Publication 523 for all the details; then use Form 2119 to report the transactions and to calculate any tax deferral.
Q: My church now accepts contributions charged to my bank credit card. If I charge a donation in December, but don't pay the charge until January, when do I take the deduction ?
A: The IRS rule is that a contribution is made at the time of its "unconditional delivery." So you deduct a contribution in the year the charge is made to your account regardless of when you actually pay the bank.
This is also true if you simply borrow money from a bank (or other third party) -- you take the deduction when you give the money to the church, not when you repay the loan.
But if you give a promissory note (or "pledge") to the church itself, then you cannot claim the deduction until you actually make the payments.