I want to establish an individual retirement arrangement (IRA)
for me and my spouse but I need additional information. What is the most I can contribute
during the tax year?
If both you and your spouse work and both have taxable compensation, each of you can
contribute up to $2,000 (or the amount of each IRA owner's compensation, if less) to a
separate IRA. Beginning in 1997, even if one spouse has little or no compensation, up to
$2,000 can be contributed to each IRA if combined compensation is at least equal to the
amount contributed to both IRAs. You can contribute $2,000 to a separate IRA for your
nonworking spouse if you file a joint return. Your total contribution to both your IRA and
the spousal IRA for this year is limited to the smaller of $4,000 or your taxable
compensation. You cannot contribute more than $2,000 to either IRA for the year. For
additional information, refer to Tax Topic 451, IRAs, or Publication 590, Individual Retirement Arrangements (IRAs).
Can I deduct alimony paid to my former spouse?
If you are divorced or separated, you may be able to deduct the alimony or separate
maintenance payments that you are required to make to your spouse or former spouse, or on
behalf of that spouse. For additional information, refer to Tax Topic
452, Alimony Paid (this topic covers alimony under decrees or agreements after
1984), or Publication 504, Divorced or Separated Individuals.
I own stock which became worthless last year. Can I take a bad
debt deduction on my tax return?
If you own securities and they become totally worthless, you can take a deduction for a
loss, but not for a bad debt.
The worthless securities are treated as though they were capital assets sold on the
last day of the tax year if they were capital assets in your hands. Report worthless
securities on line 1 or line 9 of Schedule D (Form 1040), whichever applies. In columns
(c) and (d), write "Worthless." For additional information, refer to Publication 550, Investment Income and Expenses (Including Capital
Gains and Losses). For more information on bad debts, refer to Tax
Topic 453, Bad Debt Deduction.
I am considering a tax shelter investment. How can I tell if the
tax shelter is "abusive"?
An "abusive tax shelter" is a marketing scheme that involves artificial
transactions with little or no economic reality. Generally, you invest money to make
money. An abusive tax shelter offers you inflated tax savings based on large write-offs
and credits. It is often out of proportion to your investment. An abusive tax shelter
exists solely to reduce taxes unrealistically, and thus receive an economic benefit. A
legitimate tax shelter exists to reduce taxes fairly and also produce income. As in any
investment, a real tax shelter involves risks, while an abusive one involves little risk,
despite outward appearances. Abusive tax shelters are often marketed in terms of how much
you can write-off in relation to how much you invest. This "write- off" ratio is
frequently much greater than one-to-one. A series of tax laws has been designated to halt
abusive tax shelters. For additional information, refer to Tax Topic
454, Tax Shelters.
I moved to a different state to accept a new job. Will I be able
to deduct all of my moving expenses?
If you moved because of a change in your job location or because you started a new job,
you may be able to deduct your moving expenses. To qualify for the moving expense
deduction, you must meet two tests. The first test is distance. The second test concerns
time. You can only deduct certain moving expenses that were not reimbursed by your
employer. For additional information, refer to Tax Topic 455, Moving
Expenses, or Publication 521, Moving Expenses.
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