My ex-spouse took the house during our divorce and filed for bankruptcy. Do I owe taxes on the forgiven debt

Posts Tagged ‘income taxes’

My ex-spouse took the house during our divorce and filed for bankruptcy. Do I owe taxes on the forgiven debt

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Q: I received a 1099-c form from the mortgage company I used to have a loan with. My ex-wife and I were both on the mortgage. She took the house in the divorce and never got my name off of the loan. She then filed bankruptcy. I received the 1099c form that simply showed the amount of debt forgiven and the reason being bankruptcy. I never personally filed bankruptcy. Do I owe taxes on this forgiven debt?

A: Since this is such a specialized tax matter, we asked CPA Gregory Lauray for his advice. Here’s what he had to say:

Lenders are generally required to report any debt forgiveness on form 1099-c, however, debt forgiveness income is determined by the existence of certain circumstances. Debts forgiven pursuant to a bankruptcy action are not considered taxable income. However, the debtor must reduce certain tax attributes (i.e. net operating loss carryovers, carryovers of general business credits, capital loss carryovers and etc.) in the amount of the debt forgiven. In effect, this means that the bankrupt individual will pay the taxes on the debt forgiven by either losing certain tax benefits and/or increasing gains on certain assets if they’re sold later. The divorce effectively makes this your ex-wife’s debt forgiveness since she effectively assumed the mortgage pursuant to the divorce decree. You’ll want to be ready to prove that if the question arises.

Gregory K. Lauray & Co., P.A. assumes no liability for reliance on these information as we don’t know your circumstances nor the completeness of the fact situations presented, both of which could alter responses. Always consult a qualified tax professional about your specific tax situation.

Should I pay myself a part time salary or have the compensation added to my spouse’s salary

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Author: The Money Coach

Q: I have the opportunity to start getting paid for some work I do for my husbands company. Should I pay myself a part time salary or should I have the compensation added to my husbands salary. Does it affect the amount of taxes we would pay having a two income family instead of one income with the same total.

A: Since this is such a specialized tax matter, we asked CPA Gregory Lauray for his advice. Here’s what he had to say:

Generally the married filing jointly filing status results in the lowest rate of tax, except in certain cases when both spouse work and the level of combined income is such that the amount of taxes being paid on a joint return is greater than what would have been paid had two people filed as single unmarried individuals. This is known as the marriage penalty and it generally applies at the higher income levels and if the income is there, there’s little that can be done other than getting divorced and co-habitating together instead.

In your case, it sounds like there’s a pool of income that’s to be split between you and your spouse and taking a part-time wage is likely going to be a distribution of income that would otherwise be taxed anyway. The only incremental taxes you’d be looking at would be additional FICA taxes on your wages, if your spouse’s earnings would exceed the FICA maximum wages otherwise. If not, a part time wage would not result in much in the way of incremental taxes.

One of the great things about a husband and wife self employment deal is the ability to load up on income deferral options. In your case, a SIMPLE IRA plan might work well for both you and your spouse. These plans allow you to defer up to 11,500 of income for 2011 via salary reduction expressed as a flat dollar amount. So, you could elect to have your entire wage up to $ 11,500 deferred into a SIMPLE IRA while your husband’s business would get a full deduction for your wages, but generate no taxable income to you. Your husband could also kick in another $ 11,500, hence doubling the amount of income deferred. If you’re both over age 50, you both can defer another $ 2,500 a piece. Setting your wages up in this fashion would allow for you to maximize income deferral that otherwise wouldn’t be available if you were not employed by your husband’s business.

Gregory K. Lauray & Co., P.A. assumes no liability for reliance on these information as we don’t know your circumstances nor the completeness of the fact situations presented, both of which could alter responses. Always consult a qualified tax professional about your specific tax situation.

I worked for the United Nations. They did not subtract any tax from my income, what I should do?

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Author: The Money Coach

Q: Hello Lynnette ! I am an international graduate student who worked as a part time contractor to the United Nations in 2010 for about 6 months. They did not subtract any tax from my income, and the UN does not provide a W-2 or any tax form. My supervisors don’t know what I should do, and neither does my school. What should I do?

A: Since this is such a specialized tax matter, we asked CPA Gregory Lauray for his advice. Here’s what he had to say:

Section 1 of the International Organizations Immunities Act provides for an exemption from US taxes and related withholding for any pay you receive from an international organization like the United Nations. So, as a non-US citizen or non resident of the US, this pay is exempt from taxation, however it may be taxable in your home country depending on tax laws there.

Gregory K. Lauray & Co., P.A. assumes no liability for reliance on these information as we don’t know your circumstances nor the completeness of the fact situations presented, both of which could alter responses. Always consult a qualified tax professional about your specific tax situation.

Further reading:

What is the United Nations? The United Nations is an international organization founded in 1945 after the Second World War by 51 countries committed to maintaining international peace and security, developing friendly relations among nations and promoting social progress, better living standards and human rights.

Where can I find a copy of the International Organizations Immunities Act? http://www.ipu.org/finance-e/PL79-291.pdf

How Can I Lower My Income Taxes?

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Author: The Money Coach

Q: How Can I Lower My Income Taxes? My Wife and I Make About $140,000 Combined a Year. We have Two Young Children. We Live in Massachusetts. We Owed Money Last Year and This Year We Owe About $4,600.

A: I know it hurts to get a big tax bill, and it’s not fun to find out that you owe the government nearly five thousand bucks. But there are some ways you can start to lower your taxes in the future. Here are six strategies I’d recommend:

Adjust Your Withholdings At Work
Since you said that you owed money last year also, and that your wife was recently laid off for two months, it very well could be the case that your W-4 withholdings need to be tweaked at work – possibly at both of your places of employment. In essence, you need to adjust your withholdings so that more taxes are taken out over the course of the year. Even though this is still paying taxes, it’s spread out. So you’re less likely to feel the sting of it. Also, by prepaying the proper amount of taxes due over the year, you’ll avoid those nasty IRS penalties for under-payments. Publication 919 from the IRS has more details about properly adjusting your withholdings to that you don’t wind up paying too much tax. The IRS also has a Withholding Calculator available online. Click the following link for more info. http://www.irs.gov/individuals/article/0,,id=96196,00.html.

Max Out Your 401(k)
If you have a 401(k), a 403(b) or any other type of employer-sponsored retirement plan, try to contribute the maximum allowable. Not only might you get a matching contribution from your employer, but you will also reduce your taxable income because money put into a 401(l) plan is contributed on a pre-tax basis. In 2010, the maximum contribution for a 401(k) plan is $16,500. People who are 50 and older can put in an additional $5,500.
The 2010 maximum contribution amount is $5,000 for IRAs, and an additional $1,000 contribution to an IRA is allowable for those 50 and older. So max out that 401(k) plan. Ditto for your wife at her job.

Take Advantage of Health Savings Accounts and Flexible Savings Accounts
If your company has a Health Savings Account, and you haven’t already done so, do sign up for it. Since you have two young children, you can contribute up to $6,150 to an HSA on a pre-tax basis. If you’re going to have to pay for certain health-related costs anyway, why not get a tax break for doing so? Do the same thing with a flexible spending account, which currently has a maximum contribution of $5,000. So get prepared for your next open enrollment season at your job, when you’ll be able to make 2011 selections for your FSA.

Itemize and Boost Deductions
One other way to lower your taxes is to ramp up your deductions. If you don’t take the standard deduction, you obviously need to itemize your deductions. This calls for some good record-keeping. Even though many taxpayers could benefit financially from itemizing their deductions, the IRS reports that lots of people don’t do it – simply because of the extra work involved.

To boost your deductions, here are some ideas about what you can claim:

•   charitable contributions
•   mortgage interest
•   interest on student loan payments
•   business use of a home
•   state, local and foreign income taxes
•   real estate taxes
•   personal property taxes
•   state and local sales taxes
•   qualified motor vehicle taxes
•   any estimated taxes you paid to state or local governments during the year
•   any prior year’s state or local income tax you paid during the year
•   miscellaneous deductions (in excess of 2% of your adjusted gross income)

In your case, your 2010 miscellaneous deductions could be significant. Since your wife was recently out of work, she can claim job-search expenses (like resume preparation, headhunter services, postage for mailings, unreimbursed travel and hotel bills for interviews, etc.). Under the category of “miscellaneous deductions,” you can also take deductions for things like tax and investment advice, as well as unreimbursed employee expenses.

Fund a 529 Plan for Each of the Kids
Since you mentioned having a 5-year-old and an 8-year-old, it’s possible that you’ve already thought about saving money for their future. One great way to do it is by opening a 529 Plan. That’s a state-sponsored college savings plan. Money invested in a 529 plan grows tax free and when you later take the money out to pay for college, the appreciation or gains that have been racked up in a 529 plan are also tax free. Best of all, many states offer a tax deduction for 529 Plan contributions. In 2009, you could put up to $13,000 in a 529 plan without triggering any federal gift taxes. In Massachusetts, where you live, unfortunately there is no direct state tax deduction or credit for contributions. However, according to SavingforCollege.com, which offers great information about 529 plans, Massachusetts does exempt qualified distribution from 529 plans, in conformity with federal law. The state also allows for tax-free treatment of 529 rollovers (i.e. earnings rolled into or out of a 529 plan). Again, if you’re already saving for your kids’ college education, or had planned to do so, you can get some serious bang for your buck with these tax-advantaged 529 plans.

Professional Help Wouldn’t Hurt
In addition to the strategies I’ve just recommended, as a practical matter, it would certainly not hurt you to also do some front-end planning with an accountant or financial advisor. This means you should get going now on tax-reduction activities, ahead of the April 15th tax filing deadline, and continue to make some smart money-moves all year long. A qualified CPA or other tax/financial expert should be able to review your overall financial picture, and give you even more specific advice about how to lower your tax bill.

If you use all these options, chances are by the time next year rolls around, you won’t find yourself having to write yet another big check to Uncle Sam.

Ask The Money Coach

Posts Tagged ‘income taxes’