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A
spouse's tax liability; and figuring the tax bills of IRA and annuity
beneficiaries.
Wife's liability for husband's
tax debt
Dear Tax Talk:
My husband and I have filed income taxes separately for the past
three years. He owes income tax from three years ago that he was
paying out. He has stopped paying. Can I be liable or can my property
(home and five acres) be in jeopardy? We are separated and I live
in the home.
Sandra
Dear Sandra:
Since you did not file a joint return with your husband for the
delinquent year you are not liable for his unpaid tax. It's generally
good practice for a married couple experiencing financial and marital
problems to file on a separate basis to avoid liability for each
other's taxes.
You refer to the home and five acres as your
property, so I assume he is not a joint owner with you. If this
is the case, and you do not live in a community property state,
then the Internal Revenue Service cannot go after this property.
If you do own the property jointly or live in a community property
state, then IRS may be able to place a lien on the property for
your husband's unpaid tax bill. Since the IRS collection procedure
varies by state, I would recommend consulting a good attorney in
your area for additional advice.
Calculating taxes of IRA
and annuity beneficiaries
Dear Tax Talk:
How do you calculate the income taxes paid by the beneficiaries
of either a traditional IRA or a deferred annuity after estate taxes
have been paid? I would appreciate information regarding taxes and
income in respect of the decedent (IRD).
Roy
Dear Roy:
Both a traditional IRA and a deferred annuity are items of income
when inherited. Generally, a survivor or beneficiary reports income
from these items in the same way that the decedent would have reported
the income.
Generally the full amount of a traditional IRA
will be includible in income of the beneficiary when received. A
traditional IRA is an IRA where the annual contributions have been
fully deducted. In a recent column, I discussed the rules relating
to required
distributions from inherited IRAs.
A traditional IRA is income in respect of a
decedent (IRD) and accordingly a portion of the estate taxes attributable
to including the value of the IRA in the estate is deductible by
the beneficiary. To do this, figure the estate tax on the estate
excluding the IRA and compare it to the estate tax including the
IRA. The difference in the estate tax is the amount deductible by
the beneficiary. Deduct it on Schedule
A as a miscellaneous itemized deduction not
subject to the 2 percent floor (line 27 of 2000 Schedule A).
Deduct it ratably over the time that you include the IRA in income.
A deferred annuity is the term applied to an
annuity contract payable sometime after the contract is entered
into. This is compared to an immediate annuity, which is one calling
for annuity payments to commence at the time the contract is entered
into (i.e. no deferral or accumulation period). Both types of annuities
have payout options.
A payout option refers to the term over which
the annuity will be paid. For example an annuity can be paid over
a single life (in which case there would be nothing left to inherit,
unless the annuity was guaranteed for a certain term, which is another
payout option) or joint lives.
An annuity is not subject to the IRD deduction
unless the decedent dies after his annuity starting date. There
are various rules applicable to inclusion in income of an annuity
depending on the payout options. These rules are further complicated
by the fact the annuity was inherited. Therefore, at this point,
I recommend that you review the annuity contract with a qualified
accountant to determine the proper manner for including the payments
in income and claiming a possible estate tax deduction.
If you want to read more, check out Bankrate's
Tax Tip on IRD.
-- Posted Nov. 17,
2000
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