Broker Check

July 31, 2004

Losing Variable Annuity

            A loss on cashing in a variable annuity is partly deductible.  The loss is a miscellaneous itemized deduction, not a capital loss according to the IRS, and so it is allowable only to the extent it exceeds 2% of a filer’s adjusted gross income.  Although a 1961 revenue ruling seems to OK an above the line deduction, the 2% of AGI limit was not in effect when the guidance was issued.  The IRS could put an end to taxpayer confusion simply by updating the 1961 Revenue Ruling to reflect the change in the tax law.  But it hasn’t.
            We believe that if the loss is taken as a miscellaneous deduction, AMT could be triggered and you will lose more of the benefit of the loss.
            If you are in this situation, contact us for our tax advice. Kiplinger Tax Letter 6/18/04

Taxing Event

            Cashing out an annuity and purchasing another one is a taxable event.  The transaction is not a tax deferred exchange, according to the IRS.   Since a swap may take time to implement, some investors are being told to take the proceeds from one annuity and buy the other one themselves.  However, following that advice would make the whole transaction taxable.  The only way to defer tax on an exchange of all or a portion of an annuity is to make sure the money is transferred directly between annuity issues. Kiplinger Tax Letter 6/18/04

Cellular Telephone Used For Business

            You must keep detailed records on cellular telephones used for business.  Otherwise, a deduction is disallowed for lack of substantiation, says the Tax Court.  The strict record keeping rules for business vehicles and computers apply to cellular telephones as well.  The records must document the time, place and business purpose of the telephone calls. Kiplinger Tax Letter 5/21/04

Interest Rates Drop

            on taxes owed by 1% to 4%.  On refunds, the IRS will pay 4% to individuals and 3% to corporations.  For corporate refunds in excess of $10,000, the rate on the amount of refund over $10,000 is 1 ½%. Kiplinger Tax Letter 6/18/04

Political Conventions Can Create Tax Free Income

            For those of you who may be in the fortunate position of renting out your homes during the Republican or Democrat conventions, be aware that the vacation home rules state that if you rent out your home less than 14 days you can exclude the income (and you will exclude the additional expenses as well).

Best Song

            I do not know who you prefer for President.  But as for me, I vote for Johnny B. Goode as the best campaign song.

            If you have any questions about the foregoing or any other financial matters, please call us.  If you want to read more, visit the AOHL Newsletter Archives at

Remember, We’re Here For You!!