8-1. I want to establish a traditional 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 traditional IRA. 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).

8-2. 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.

8-3. 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 Form 1040, Schedule D), 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.

8-4. I am considering a tax shelter investment. How can I recognize an abusive tax shelter?

Tax shelters can reduce current tax liability by offsetting income from one source with losses from another source. The IRS allows some tax shelters, but will not allow a shelter which is "abusive." An abusive shelter generally offers inflated tax savings which are disproportionately greater than your actual investment placed at risk. Generally, you invest money to generate income. However, an abusive tax shelter generates little or no income, and exists solely to reduce taxes unreasonably. In comparison, a legitimate tax shelter often produces income and involves a risk of loss proportionate to the expected tax benefit. 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 often much greater than one-to-one. A series of tax laws has been designated to halt abusive tax shelters.

Any person participating in an abusive tax shelter may be penalized up to $1,000, in addition to being liable for the full tax irrespective of the shelter.

For additional information, refer to Tax Topic 454, Tax Shelters.

8-5. 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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