Tax questions on dividends, IRAs, and truck-stop meals

Q: I have a mutual fund that has gone down, but I have also had dividends that were reinvested. Are the dividends taxable?
L.L.B, via e-mail

A: Yes. Dividends paid out by mutual funds - typically at year-end - are taxable when they're "distributed," even though they may have been reinvested in the fund. That's one of the downsides to funds. Reinvested dividends, however, are added to your cost basis in the fund and reduce any gain reported when the investment is sold, says A. Raymond Benton, a certified financial planner in Denver.

If a loss occurs, it is netted against any capital gains you may have had. After that, losses can be used to the extent of $3,000 per year to offset ordinary income. Losses in excess of the $3,000 limit carry forward and can be used in future years. More information can be found in IRS Publication 564, Mutual Fund Distributions.

Q: I currently do not have enough money to max out an IRA before the April 15 tax deadline. Should that in any way influence whether I put the money I do have into a Roth or traditional IRA?
T.M., via e-mail

A: If you don't have enough money to make the maximum contribution, then Miami financial planner Penny Marlin says the second part of your question is moot.

Whether you contribute to a traditional IRA or a Roth IRA depends on your income level. If your question is which IRA should get whatever money you have, Ms. Marlin says that in most cases the Roth is a better choice.

Q: I was told that truck drivers may deduct, on their taxes, their on-the-road meals. Is this correct?
L.L., Visalia, Calif.

A: Truckers may be able to deduct the cost of meals as a business travel expense.

There's a special rate for people who work in transportation. If it applies to you (see IRS Pub. 563 for guidance), you can claim a $38 per-day meal allowance for Jan. 1, 2002, through Sept. 30, 2002, and $40 a day for the rest of the year.

There are limitations to how much of this you can deduct. Truckers and some other transportation workers can deduct 65 percent of this allowance on their tax return, where it pops up on Schedule C for the self-employed, or Form 2106 for employees.

That's the simpler way. There also is a rate that takes into account food costs in various parts of the country. But to use that you have to look up the rate that's applicable whenever you pull over for a meal.

Sometimes a daily allowance, typically called a per diem, is paid to truckers by their employer. Depending on that reimbursement, some of the cost of meals may not be deductible.

Q: As a person with a least 30 years before retirement, I was told to shape my retirement accounts aggressively (high growth). Therefore, all my mutual funds have lost big in the past two years. Should I change to a less aggressive scheme?
A.S., via e-mail

A: While a growth-oriented portfolio is appropriate for someone with such a long time horizon, it doesn't mean all of your assets must be invested in aggressive-growth funds, says Penny Marlin, a certified financial planner in Miami.

Asset allocation - diversification among asset types (bonds vs. equities), and among investment styles within those types - is very important in mitigating risk. Ms. Marlin says a small allocation to bonds or bond funds, for instance, would have mitigated damage to your portfolio. In addition, your equity funds should be diversified among US and international companies. In the domestic equities, they should be further diversified among large-cap and small-cap companies. Further, consider a mix of value and growth-style funds.

Q: How safe is it to request a copy of my personal credit report online? I'm a little leery of providing information such as my Social Security number online, and am wondering if it is better to just use regular mail. Are there any particularly well-known and reputable sites for this kind of service that might reduce any risk?
C. N., via e-mail

A: Not to worry, says Susan Henson, a spokeswoman for credit-reporting company Experian. All information transmitted online at www.experian.com is encrypted.

"It's very secure and safe. And very fast," says Ms. Henson. So fast that once you request a copy of the report you should stick around to make sure you can download it or fetch it from the fax before someone else gets a peek at it.

The other two major credit agencies have similar setups, Equifax at www.equifax.com, and TransUnion at www.transunion.com. If you still feel unsure, you always can call them: Experian at 888-397-3742; Equifax at 8685-1111; and TransUnion at 888-503-0048.

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