Question: I am a federal Civil Service employe. The calendar for 1982 is such that there were 27 pay periods during the year rather than the usual 26. My salary checks are deposited directly to my bank account. The last check was issued on Dec. 30, 1982--but it didn't arrive at my bank until Jan. 3, 1983. I have the bank deposit notice showing the date the payment was credited to my account. But the W-2 from the government includes that payment in total wages. Do I have to include it in my 1982 tax return?
Answer: Other things being equal, it would be to your advantage to slip that income to 1983, when the tax bite is 9 percent lower.
In the current issue of Publication 17, "Your Federal Income Tax," the IRS says that a cash-method taxpayer (that's most of us) reports income for the year in which it is actually or constructively received.
Then the IRS further explains that you do not need to have physical possession of the funds. Income is constructively received "when it is credited to your account" or otherwise made available to you.
By that definition, the salary for the last pay period is income to you in 1983 and should not be included on your 1982 tax return.
This is a different circumstance than a worker who is normally paid in person and who would have been paid on Dec. 30 except that the worker was away, perhaps on vacation, and so didn't actually get the money until sometime in January. The payment is 1982 income because it was "available" had the worker chosen to come to pick it up on Dec. 30.
But direct deposit to your account is your normal method of being paid, and under that normal method, the payment was not credited or made avilable to you until Jan. 3.
You have two courses of action. You can go to the Civil Service Commission and ask to have a new Form W-2 issued excluding that last payment.
I suspect they will not agree, since in fact, they did make the payment in 1982, regardless of when you received it. And making such a shift would involve substantial--and potentially confusing--record changes.
So you will probably need to go for the alternative. Subtract the amount of the wages (and the income tax withheld) from the totals on the W-2 and report on your tax return the reduced amount.
Then attach a note to the return explaining the discrepancy. It might be a good idea to attach also a copy of the bank deposit receipt showing the Jan. 3 credit to your account.
Be sure to retain the numbers with your 1983 tax records, because next year you will have to add to your 1983 W-2 figures the same amounts you are deducting this year.
To be fair about the whole thing, if you itemize deductions, you should also slip from 1982 to 1983 the amount of any federal health insurance premium and United Way contribution deducted from that last payment.
Q: In your December column on capital gains and losses you give the impression that short-term losses are deductible without limit in the year incurred. I believe your readers--some of whom may not be familiar with capital losses--should be told that the deduction is limited to $3,000 a year.
A: You're right. There's an unfortunate tendency for any professional to write or speak in the context of his or her knowledge rather than that of the audience.
So to set the record straight, you may deduct no more than $3,000 of net capital loss in any one tax year. Any balance may be carried forward to succeeding years, still subject to the annual ceiling, until used up.
If your net capital loss is short term, it may be used dollar-for-dollar as a Schedule D deduction from other income, up to that $3,000 limitation. But only 50 percent of a net long-term loss counts, so it takes a $6,000 long-term loss to give you the $3,000 maximum annual reduction.