Ask the tax adviser
Capital losses and IRA distributions
Dear Tax Talk:
My wife and I are 70½ this year. We also have a large short-term
loss this year. Can we cash out the amount of the loss from our
If I understand correctly, you want to offset your IRA minimum distributions
(or more if possible) with a short-term capital loss that you sustained
in accounts or transactions that are not retirement accounts.
Funds withdrawn from IRAs are considered ordinary
income, not capital gain income.
Within the IRA you may realize a capital gain on the
sale of an appreciated security. However, when the money from that
security sale is withdrawn, it is taxed as ordinary income to you
individually (or to your wife in the case of her IRA), not as capital
Capital gain within the IRAs does not in any way affect
your capital losses outside your IRAs. Capital losses in excess
of capital gains outside your IRAs are only deductible up to $3,000
against ordinary income, which includes dividends, interest, pension
income, taxable Social Security benefits and your IRA withdrawals.
Bankrate table shows how much money must be taken from retirement
accounts each year under the Internal Revenue Service's new
minimum distribution rules.
of employer-provided vehicle
Dear Tax Talk:
I am currently given the usage of a company vehicle, for which I
am responsible for all maintenance and consumables. I now have been
offered to return the vehicle and, in exchange, be given an "allowance"
of $500 per month. How should this payment be classified to be most
beneficial to me?
I am hoping that the tax rate for vehicle allowance
is far lower than personal tax. Would it be possible for the company
to directly pay monies into a vehicle loan account on my behalf
as a company expense? Eighty-eight percent of my mileage is commuting
Also, what taxation rate should I expect on this amount?
I work in South Carolina, but am a resident of Georgia.
I appreciate your help.
You don't say if the company is including the value of the vehicle
in your paycheck. If 88 percent of your use of the car is for commuting
to and from home, then at least 88 percent of the lease value of
the vehicle should be taxed to you as wages.
If the other 12 percent is business (such as visiting
customers) and you pay the consumables, then you should be able
to offset some of the value included in your paycheck with these
expenses as long as you account to your employer for these expenses.
If you don't use the car at all in business, the vehicle's
full value should be considered additional wages and you would not
have an offset.
When an employer includes the value of a vehicle in
your paycheck, taxes relating to this inclusion are deducted from
your other pay.
For example, if you earned $5,000 a month and had
no vehicle inclusion, your net paycheck after federal and state
income tax and FICA and Medicare taxes may be $3,750 after accounting
for 25 percent in payroll deductions.
If the inclusion of the vehicle is $500, then your
total pay for tax purposes is $5,500 a month. Assuming the tax is
the same 25 percent, your net pay goes down to $3,625. This amount
represents the $125 in tax relating to the auto inclusion that comes
from your cash wages of $5,000 less the $1,250 you owed anyhow.
If you accept the $500 allowance, then most likely
the $500 will just be considered additional wages, since your business
use of the vehicle is so minimal. Your taxes will probably be similar
in proportion to the taxes in the example above, assuming that your
employer is already including a similar amount in your paycheck
for the lease value of the vehicle. Your state tax situation will
probably not differ much.
Again, since you don't use the vehicle in business,
if your employer pays off a car loan, that payment amount is considered
additional compensation subject to payroll taxes.
If your employer has not been including the
vehicle in your wages, then it has been treating the car as if you
did use it in business. This is wrong on the company's part as well
as your part. Your employer should consult with the company's accountant
to determine the proper tax treatment of employer-provided vehicles.
Failure to do so can create problems for your employer and you.
-- Posted: Sept. 18, 2001