When preparing your federal income tax return during the coming filing season, you’ll need a valid identification number for you, your spouse and every dependent born before Dec. 1, 1996, the IRS says.
“Recent tax law changes make valid identification numbers a requirement for claiming personal exemptions, the child care credit or the earned income credit,” according to an advisory from the IRS’s Washington office.
If a tax return has a missing or incorrect identification number, the IRS may disallow the related item(s) and correct the tax. (So, the IRS might disallow your claim for the child care credit, for example.)
If you don’t have an identification number, apply for one now so that you’ll have one in time for the tax filing season:
If you’re a U.S. citizen, or an alien who’s been lawfully admitted for permanent residence or employment, contact the Social Security Administration for a Social Security number. (Call 1-800-772-1213 for details.)
If you’re a non-resident or resident alien and you’re not eligible for a Social Security number, use Form W-7 to ask for an individual taxpayer identification number from the IRS. (Call the IRS at 1-800-829-3676 for a copy of Form W-7.)
Remember: The IRS will no longer accept temporary numbers, “applied for” or other designations in place of the required numbers; only Social Security numbers or individual taxpayer identification numbers can be used on your return.
Guide explains funds, taxes
Just in time for tax filing season comes a splendid little guide about taxes and mutual funds published by the Vanguard group of mutual funds.
Written in plain language, this 30-page booklet helps to unravel the mysteries about how mutual fund investments are taxed.
It explains clearly how dividends and capital gains distributions are taxed, which types of funds are the most “tax friendly” to investors, and how you can limit tax by timing the sale of your fund shares. And, yes, there’s also a section devoted to that knotty little problem of figuring your “cost basis” in fund shares.
For your free copy of the booklet “Taxes and Mutual Funds,” call 1-800-523-7721 from 8 a.m. to 9 p.m. Eastern time on business days, or 9 a.m. to 4 p.m. Eastern time on Saturdays.
Your request won’t result in any follow-up sales pitches by phone or mail, said Vanguard spokesman Brian Mattes. “We’ll send the booklet out and that’ll be it,” he said.
If you have access to a computer, you may get copies of this and other Vanguard brochures on the company’s World Wide Web site at this Internet address:
By the way: If you’re a computer buff and you’re interested in mutual funds, the Mutual Fund Education Alliance, a non-profit group, has a World Wide Web site that serves as a free educational resource for investors.
The alliance site offers a special focus on the popular subject of investing for children, and is planning another about women and mutual fund investing. Use this Internet address:
Some things best delayed until ‘97
For those all wrapped up in trying to complete their Christmas preparations, American Express Tax and Business Services suggests there are some things best put off until 1977.
Travelers planning to fly next year should delay the purchase of their airline tickets. A 10 percent federal excise tax expires Dec. 31.
An excise tax on automobiles costing more than $34,000 drops by 1 percent, to 8 percent, on its way to disappearing entirely in 2003.
A 10 percent penalty on money withdrawn early from individual retirement accounts will be waived if funds are used for medical expenses.
Proceeds on the sale of life insurance policies by those with life-threatening illnesses will be tax-free.
ADR a stand-in for foreign stock
What is an ADR and how is it different from stock?
American Depository Receipts have a complex legal mechanism behind them, but their function is relatively simple. Basically, they are the equivalent of shares of stock in a foreign corporation.
Here’s how they work: A company based overseas wants to raise capital in the U.S. market. Instead of having American investors buy shares directly - a process that can be complicated by tax laws or international trade controls - the company issues a special class of stock, and sells it to a large American bank or other “depository” institution. The bank then sells an equivalent amount of ADRs to U.S. investors and lists them for trading on one of the U.S. stock exchanges.
Investors then can simply buy and sell the ADRs as substitutes for the stock of the foreign company. Although dividends, proxy activity and the like are all conducted through the U.S. depository, investors have much the same rights as they would with ordinary stock in a U.S. corporation.