My father died in June 2006. Since he had always filed his own tax return, it fell to me to file my parents' return for 2006. I recently discovered that I overlooked the fact that my mother had cashed a savings bond with interest accumulated of $5,800. I was advised that IRS would send her a notice of the omission with a bill for the interest and any penalty due. I'm now concerned that waiting only increases the interest and perhaps the penalty. Should I notify IRS or just wait for them to notify us?
What Harry says: I see no advantage to waiting. Get a Form 1040X (amended return) and get it in as soon as you can. The form is not at all complex. Waiting only increases the amount IRS will be demanding.
Dear Harry: I have a credit limit of $25,000 on my main credit card. When I opened the account it had a "guaranteed" interest rate of 9.99 percent. I had another card with a higher rate of interest so I transferred a balance of $2,600 to the main account. When I got my next statement, I noticed that they had raised my interest rate to 16.99 percent. At that time, my balance was only $11,000 so I was well within my limit. I contacted the bank at the customer-service number on the statement, and I was treated more rudely than I have ever been treated. I called again, got a different representative and got the same treatment. I remembered the advice you gave in a similar situation, and I called the New Jersey Banking Commission. They got the bank to toe the line. About five days later, I got a call from someone who said she was from the CEO's office telling me that my rate had been changed back to 9.99 percent. In addition, she said that they were crediting my account for $500 for the additional interest charged and the inconvenience.
What Harry says: Great! But why do you carry a balance on your credit card? Work hard to get that down to where you pay the balance in full every month. Do it soon so you don't get into a habit of living beyond your means.
Dear Harry: Back in 2000, I purchased an annuity with a major insurance company for $90,000. It paid 8.1 percent for the first year, with a smaller guarantee for the next six years. For 2007, it is paying 3.85 percent. I wanted to discontinue it, but I was convinced by one of their employees to keep it because it would avoid probate. I just realized that I never paid any income taxes on the interest it earned, so I called again. The person I spoke with told me that I owed no tax since I never withdrew any of the money. I asked her to send me something in writing so I could show it to IRS if I'm questioned. So far, nothing, and I've called back three times. The annuity is now worth more than $130,000 so you can see why I'm worried.
What Harry says: You will not be taxed until you start to take your payments. For each payment, a portion will be taxable and a portion will be deemed to be a return of your original investment. The company will notify you of the method for determining this breakdown and will offer to help with the computations. So, set aside your income-tax concerns.
Dear Harry:I must alert you to a new way of stealing credit information. I received a letter in the mail ostensibly from my credit-card bank. It was not on formal bank stationery, and the print was slightly faded. It did have the last four digits of my card number. Six legal-sized sheets were included supposedly amending my credit-card agreement. In order to reject the new terms, I had to fill out a form with all kinds of personal information including my full card number. At that point, I felt that something was not kosher. I called the bank at the number on my previous statement (not the number on the letter), and I was informed that what I got was not connected to the bank. They told me that the box number on the return envelope was not one of the bank's boxes. They asked that I send them a copy of the stuff I received so they could follow up, if possible. I suppose the perpetrators would close that box if things seemed to be closing in on them. Please alert your readers.
What Harry says: We've reached the point where you have to suspect everyone who wants personal info from you. What you did was the wisest way to handle it.
Dear Harry: I purchased a home with my boyfriend in 1996. I moved out in 2000, and he stayed. Since then, I have been going out of my mind trying to get my name removed from the title and the mortgage. As co-borrower, I was always notified of late payments, but the mortgage company took no action to remove my name. I just visited a lawyer who wanted to charge me a $2,000 fee, but he wouldn't guarantee that he'd get my name off the property. My ex-boyfriend has told me that he has tried to get me off the mortgage, too, but they keep telling him that they need proof of his improved credit standing before they will do anything. To make matters worse, I am trying to buy a place of my own, and I cannot get mortgage approval despite my credit score in the high 700s.Does it matter if he was recently married?
What Harry says: It may matter that he now has a wife. If her credit score is very high, the mortgage company may be willing to substitute her for you. Of course, the title also would have to be changed. If your ex and his wife are willing to do this, they should approach the mortgage company, and take a shot. You must recognize that the lender does not have to do anything. You're being held on the debt because his credit is poor, and there's no way to force the company to let you off the hook.
Dear Harry: A hot-water pipe burst in my neighbor's basement. Aside from the terrible mess, she paid a lot to replace a section of pipes and part of the basement ceiling. The real damage, however, was to a lot of clothes that she stored there. Can she make a claim with her insurance company for the clothing as well as the cost of the cleanup and repairs? She isn't sure if she has insurance because her daughter takes care of these things, and her daughter has been very ill. What can she do if there isn't any insurance?
What Harry says: Let's hope shehas the insurance, because this sounds like she's had quite a large loss. The claim should be for the entire loss, including the clothing. Evaluating her clothing loss will be a problem. The cleanup and repairs are cash outlays, so the numbers are readily available, but there's a question of what those used clothes are worth.
If she has "replacement cost" coverage, she'll have an easier job. Most insurance companies are prompt in homeowners' settlements. If she has no insurance, the best she can do is get a tax deduction for her loss. If her total itemized deductions (including the adjusted loss) exceed her standard deduction, she could have a tax "benefit." Her loss will have to be reduced by $100 and added to any other similarly adjusted casualty losses. The combined amounts will then be further reduced by 10 percent of her adjusted gross income to get the deductible amount. Form 4684 is required and is straightforward. *