Q. Perhaps you can help. I am soon to inherit a large number of U.S. savings bonds from a deceased aunt. I am listed as the beneficiary on these bonds. Do I have to cash these bonds? If not, when I do cash them some time in the future, will I be responsible for all the interest attached to these bonds? Any information you might offer will be appreciated.
There are several options available. If your aunt had been reporting the interest each year on her income tax return, the only interest to be reported is the amount accrued between the end of last year and the date of her death. If she had been deferring the tax, then all the accrued interest since purchase of the bonds is reportable. In either case, whichever amount applies is called "income in respect of the decedent;" it should be reported on her final tax return by the executor of her estate.
The executor has another option. If it is a large estate and he or she is filing a tax return for the estate, the interest accumulated to the date of death may be reported on the estate return. If the executor selects either of these options, you will be responsible for tax only on the interest that accrues after the date of your aunt's death. You may report it each year or defer the tax until the bonds are cashed.
But if the accrued interest is not reported either on your aunt's final return or on the estate return, then you inherit the tax liability along with the bonds. If you decide to report the interest annually, then for the first year you must report all the interest not previously reported by your aunt. But you may opt to defer the tax, in which case all of the tax -- including what had accrued while your aunt was alive -- may be postponed until you redeem the bonds.
It should be obvious from this discussion that you are not required to cash in the bonds now. You may have them reissued in your name alone by taking them to your local financial institution along with a copy of your aunt's death certificate.
In my copy of the new IRS Publication 920 I fail to see my case addressed, even though I'm sure I read someplace that a change is in order for 1987. I am semiretired and self-employed and have been funding both an IRA and Keogh plan. I understand the new limits on the IRA, but is there not a limit on the sum of the IRA and the Keogh? My Keoghs are the conventional money purchase and profit sharing plans and together they amount to a maximum of 20 percent of my earned income. Is there a new limit this year?
For the benefit of readers who may have missed my earlier mention, IRS Publication 920, "Explanation of the Tax Reform Act of 1986 for Individuals," is available at most IRS offices or by mail, together with a companion volume, Publication 921, for businesses.
There is a change in the rules for 1987 and later years. Money purchase profit sharing Keoghs are considered employer plans and therefore subject you to the adjusted gross income limitations controlling IRA contributions. For a single person, the right to claim a tax deduction for an IRA starts to phase out at $25,000 AGI, and is lost completely at $35,000. On a joint return the comparable numbers are $40,000 and $50,000. The rule applies only if you are a "participant" in such a plan; you are disqualified only if deposits are made to your account during the calendar year. So even though you continue to own your Keogh, you are not subject to the AGI limitations if you make no contribution to the Keogh for 1987.
If your AGI comes in under the limiting ceiling, you can of course make deposits to your IRA as well as the Keogh. The 20 percent limit applies only to the Keogh; IRA deposits may be made in addition. But there is a total combined ceiling of $30,000 per year for both retirement plans.
Can the cost of financial information publications like Forbes, Dow Theory Forecast, etc. be deducted from income tax?
Yes, but only if you itemize deductions. The cost may be claimed as investment expense under miscellaneous deductions; they are deductible only to the extent that the total exceeds two percent of AGI.
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.