either part time or full time -- and have a Keogh plan, the requirement for an annual report on that plan has been revived. Even if you are an owner-employe and have no other employes, you must file Internal Revenue Service Form 5500-C by July 31.
Form 5500-C is a five-page report, but a note at the top of the form waives some of the questions for a plan in which the owner is the only participant. This long report is only required every third year; for the intervening years Form 5500-R, a two-page report, will satisfy the requirement (unless the plan is terminated, in which case a "final report" must be submitted on 5500-C).
The report is not very complicated, but you will have to provide the dollar value at both the beginning and end of the plan year (Jan. 1 and Dec. 31 in most cases). You also will have to account for the difference between the two figures: deposits made during the year, earnings, etc.
Don't let this new reporting requirement scare you into giving up your Keogh plan. Frankly, I don't understand why single-participant owner-employe plans are not exempt from the report, which is intended primarily to ensure funding protection for employe participants; but the 30 minutes or so of work once a year is a small price to pay for the tax benefits of a Keogh plan.
Q: I have a short-term CD that I roll over every 30 days. My bank reported to the IRS (on a 1099-INT) for 1984 interest that was not paid to me until Jan. 8, 1985. If I had cashed in the CD to get the interest on Dec. 31, 1984, the bank would have penalized me. I complained, but the bank said I had earned the interest in 1984 and it wouldn't recall its 1099. I didn't have it in 1984, so why should I have to pay tax on the money before I could get it?
A: Unless you had the right to demand -- and received -- the interest earned to date before maturity, the interest is not income to you until maturity of the certificate. The doctrine of constructive receipt applies only when the interest is credited to your account and available to you if you wish to draw upon it.
If a penalty or loss of interest would have been assessed against you if you withdrew the funds in 1984 (before maturity), then the interest is not 1984 income to you and should not have been shown on the 1099-INT the bank sent to the IRS.
Because the bank refused to correct the 1099, your only recourse was to omit the interest on Schedule B and either attach a note identifying the amount in question and explaining the reason for omission or wait until the IRS requests an explanation. Because that might be a couple of years down the line, be sure to write a note to yourself and put it in your tax file.
Q: In your column for April 15, you mentioned that a loan should be paid off when it reaches the point that you couldn't invest the same amount of money elsewhere and make a better return. Please explain the Rule of 78s; near the end of the loan are you still paying the same rate of interest?
A: The Rule of 78s is a method of computing periodic interest payments in such a way that more of each payment is allocated to interest in the early periods than is really due on the unpaid balance.
Although not economically valid, this is a technique employed by some lenders to discourage early payoffs or to ensure a larger return to them if the loan should be repaid before maturity.
The interest component of payments during the later months or years of the loan is smaller than seems apparent from the stated interest rate. So if your loan interest is based on the Rule of 78s, you should compare dollar amounts rather than percentages when deciding whether to repay a loan early or leave the funds in an investment of some kind.
Beginning in 1984, taxpayers are not permitted to use the Rule of 78s to figure interest deductions for Schedule A, except for short-term (five years or less) consumer loans. For other loans, the taxpayer must revise the interest figures stated in a Rule-of-78s loan to reflect the economically true interest cost.
Abramson is a family financial counselor and tax adviser. Questions of general interest on tax matters, insurance, investments, estate planning and other aspects of family finances will be answered in this column. Advice cannot be given on an individual basis. Address all questions to E. M. Abramson, The Washington Post, Business News, 1150 15th St. NW, Washington, D.C. 20071.