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FROM THE MAILBAG

By: Julian Block

THE TAX ADVISER

(Julian Block is a nationally recognized tax expert. To send comments and obtain information about his tax books, go to www.julianblocktaxexpert.com.)

Copyright 2010, Julian Block
END The Tax Adviser 2-8-10

For release Monday, February 15, 2010
Q. My wife died in 2009. Does this mean I am not allowed to file a joint return?
A. Don't make the common mistake of figuring your tax bill by using the higher rates for singles or head of household just because you’re a widower. The law allows you to file jointly for the year you become a widower (or widow).

TIP. For 2010, check on whether you qualify for the special break that allows a widower or widow with a dependent child — in tax jargon, a "surviving spouse" — the benefit of joint return rates for two years after the spouse's death. And even if you fail to meet all the tests for a surviving spouse, you may nonetheless be entitled to trim your tax by filing as a head of household instead of as a single person.

Q. How should I sign our joint return?
A. Assuming an executor or administrator hasn’t been appointed, you should sign your name and add after your signature: "Filing as surviving spouse."

Q. Does the law require me to report life insurance proceeds received on the death of my wife?
A. No. Life insurance proceeds paid to you because of her death do not count as taxable income. Nor does taxable income include money or other assets you receive as gifts or inheritances. But you do have to reckon with the Internal Revenue Service on any dividends, interest, rents, or other earnings that you later receive from investing the property.

Q. What about a settlement I receive from the children of her first marriage for agreeing not to contest her will?
A. Settlements similarly escape income taxes, just like inheritances.

Q. I plan to spend my retirement years in Mexico. Does moving south of the border mean an otherwise reportable pension can escape the clutches of the Internal Revenue?
A. Moving anywhere outside of the country won't help, because Uncle Sam taxes his citizens wherever they live. Nor does going abroad mean you can disinherit the IRS when it comes to estate taxes.

Q. I received $75,000 for injuries I suffered in a car accident. Is it taxable?
A. No. Compensation received for personal injury or illness is not taxed, no matter how high.

Q. My insurance company sent me a statement saying it paid dividends and interest on my life insurance policy. The company didn’t actually send me a check. Does any of the payment have to be shown on my 1040?
A. The dividends aren’t taxable unless the dividends you have received exceed the premiums you have paid. Interest on dividends left on deposit is taxable.

Q. I just received a refund on my Form 1040 for 2008, plus some interest. I know the refund isn’t reportable income, but what about the interest?
A. The interest is taxable, just the same as interest from a savings account. But because you received it after the close of 2009, list it as income on your 1040 for tax year 2010.
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