Tax Implications

Question 1

Bunching Deductions

Answer 1

Tax strategy that involves “bunching” itemized deductions so that they are high in one year and low the following year. The standard deduction can be used on the alternate year.

Question 2

Earned Income Tax Credit (IRC Section 32)

Answer 2

A custodial parent is entitled to an increased tax income credit if he or she has a qualifying child that meets IRS requirements.

Question 3

Innocent Spouse Rule (IRC Section 6015)

Answer 3

Provides tax liability relief for a spouse who signs a joint tax return and has no knowledge of the understatement of tax. In order to qualify, the following requirements must be met:

That a joint return was filed.
There was an understatement of tax attributable to erroneous items from one spouse filing the joint return.
That in signing the return, the innocent spouse did not know and had no reason to know, and there was an understatement of tax.
That taking into account all of the facts and circumstances, it would be inequitable to hold the innocent spouse liable for the deficiency in tax.
The innocent spouse elects the benefits no later than two years after the date the IRS has begun collection activities with respect to the individual making the election.

Question 4

Personal Exemption

Answer 4

A tax deduction for individual taxpayer and any qualifying dependents they support.

Question 5

Section 7703(b)

Answer 5

This section of the IRS Code states that a spouse is considered abandoned when all of the following conditions are met:

The abandoned spouse pays more than half the cost of maintaining his/her household for the taxable year.
The individual files a separate tax return.
The individual’s household is the principal home of a dependent child for more than six months of the tax year and the individual is entitled to claim the dependency exemption (even if no claim is made).
The individual lives in a residence separate from his /her spouse for the last six months of the tax year.