Tax Implications of Special Circumstances Flashcards
What are the requirements to file a joint return?
They must have tax years that begin on the same date (usually Jan 1)
They cannot be legally separated under a divorce decree on the last day of the calendar year
Niether is a nonreseident alien at any time during the year
What does it mean to have joint and several liability when filing MFJ?
This means that each spouse is 100% responsible for their tax liability - not split
What is a requirement of the tax return if a divorcing couple files MFS?
Their deductions must be congruent. If one itemizes, the other must do itemize
What is inccocent spouse relief and what qualifies?
In the case of MFJ, if one spouse under-reports income, the other spouse can get relief from taxes, penalties, etc., if they did not know
- An individual filed a joint return that has an underestimated income and the other spouse did not know
- It can be established that one spouse could not or should not have known
- With facts accounted, it would be unfair to hold the other spouse accountable
What is relief by separation of liability and how does one qualify?
An individual can allocate any understatement of tax between the individual and their spouse making them only responsible for their own portion of underpayment.
They must have filed a joint return
The individual is no longer married (or is separated)
The individual was not a member of the same household as the spouse with whom the joint return was filed.
What is equitable relief?
When the spouse does not qualify by innocence or separation, they can get equitable relief if they did not commit a fraudulent act and the tax liability for relief, can be attributable to the other spouse
What is injured spouse relief?
This is the unfreezing of a portion of a refund on a jointly filed return, for very similar reasons as the innocent spouse.
What is the purpose of a premarital agreement?
It limits the presumed effect or transfer of property brought into a marriage by one spouse to the other spouse
What is the income and support test for claiming a dependent?
A dependent should not have more than $4400 annual gross income. SS can be excluded if it’s the only income
The taxpayer must provide over 50% support to claim a dependent
What are credits that can be claimed if caring for an elder parent?
$500 credit for providing over 50% support to the parent as a qualifying relative
$600 credit for child and dependent care
Itemized deduction for any medical expenses paid
“Difficulty of care” payments from Medicaid to care for a parent at their home - not taxable AND treated as earned income for IRA purposes <-Roth IRA
What does section 1041 of the tax code say about divorce transfers?
If it is incident to a divorce, it is tax free
What is a Qualified domestic relations order (QRDO)?
An order used to divide qualified retirement plans amongst spouses at the divorce. When used, the 10% early withdraw penalty will not be applied unless the receiving spouse does not roll the funds over into another qualified plan or IRA within 60 days.
What is the tax impact of a property settlement?
Tax free and the basis is carried over to the receiving spouse
What are the four tax subject considerations of a divorce?
Alimony payments (can be tax deductible - before or after 31 Dec 2018)
Child support payments - not tax deductible
Property settlement agreements - not deductible, but transfers w/no tax and basis.
Qualifying child or filing status
How do alimony payments extend beyond death?
They don’t
