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| Undistributed capital gains for regulated investment company (RIC) shareholders |
| You must report amounts received from Regulated Investment Companies in your income even if you have not constructively received them. Constructive receipt means you actually have the money at hand meaning that it is made the income is made available to you without restrictions. If the RIC paid a tax on the capital gain, you can receive a credit for the tax since it is considered paid by you. You will see all these transactions on Form 2439 sent to you by the mutual fund. There you will see the amount of the undistributed capital gains and the tax paid by them, if any. To claim the credit you must attach Copy B of Form 2439 to your federal tax return. Not for California though. For California, do not enter any of the amounts of the undistributed capital gains on California Schedule D of Form 540 or Form 540NR. |
| Capital loss carrybacks |
| Almost all your personal use items that are used for personal or investment purposes are considered a capital asset. This would include everything from your home, furniture, stocks and bonds that have as investments. If you sell your car, for example, you could have a capital gain from the sale. Once you sell your capital asset, the difference between your basis in the assets and the amount you sell it for is either a capital gain or capital loss. The cost would normally be the amount you paid for the item. However, there are other things to take into consideration especially if the item was received as a gift and you did not pay anything for or you don’t know the cost. The time you held the item will determine if it is long term or if it is short term. The gain or loss is considered long term capital gain or loss if it is held for more than one year. Therefore, if the item is held for less than one year, it is considered short term. |
| If you have a gain from the sale of a capital asset, you would normally report it as income regardless of the amount. However, if you have a loss, you can only deduct up $3,000 and no more than that. However, if you have a capital loss which is greater than $3,000, then you must figure out what to do with the excess. You either carry it forward into future tax years or carry it back to tax years for which you have already filed a tax return. Federal allows a carryback but California does not. You must report the amount of California capital gains and losses on California Schedule D of Form 540 or Form 540NR to account for the differences. |
| IRA basis adjustments |
| An IRA may be a great way to save for your retirement. There are many tax savings and benefits in place for investing in an individual retirement account. The cost basis of your traditional IRA is the sum of any nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Cost basis in your traditional IRA is dependent on whether or not you made any nondeductible contributions to the traditional IRA. You may have differences between federal and California depending on when contributions were made to your IRA. You may also have differences between federal and California amounts if you changed residency. Your amounts could also be different due to differences in California and federal self-employment income. You may need to calculate your IRA basic for California differently than what you have calculated for federal. |
| Roth IRAs |
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There are benefits offered by investing in a Roth IRA which you may not get when you invest in a traditional individual retirement account. You can make contributions to a Roth IRA regardless of your age. You may also be able to claim a credit for federal for contributions you make to your Roth IRA. If you contribute too much to a Roth IRA, you may be liable for a 6% excise tax penalty. California conforms to federal tax law on contributions, conversions, and distributions of Roth IRAs. The only thing that could be different is the taxable amount of a |
| Copyright © 2014 [Hera's Income Tax School]. All Annual Federal Tax Refresher Course rights reserved. |
| Revised: 07/09/15 |
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