Taxing Subjects & Wealth Building

Learn more about taxes and how you can use that knowledge to build wealth…

Understanding your income taxes at a basic level is important in the current economy and with recent changes to the tax laws it is more important than ever that you understand your taxes at the state and federal level and know some of the ways that you can minimize your taxes and build wealth more efficiently.

 

In this discussion TheWealthIncreaser.com will briefly discuss a number of individual tax topics as it relates to the IRS that could possibly be of benefit to you or a loved one.

 

It is important that you understand that you have a “bill of rights” that came into effect in 2014 (give thanks to National Taxpayer Advocate Nina Olson) that outlines what you can and can’t do as it relates to filing your federal income taxes and your relationship with the IRS if you are a U.S. citizen or subject to taxation by the IRS.

 

Your Rights:

 

*Be Informed *Quality Service *Pay no more than the correct amount of tax * Challenge the IRS’s position and be heard *Appeal an IRS decision in an independent forum *Finality *Privacy *Confidentiality *Retain representation *A fair and just tax system

 

Go to taxpayeradvocate.irs.gov/taxpayer-rights to learn in more detail about your rights…

 

What is the difference between injured spouse and innocent spouse?

 

Injured Spouse

A: An injured spouse is simply someone whose tax refund is used to cover the past-due debts of a spouse or exspouse. When married taxpayers file a joint return, each spouse has an interest in the jointly reported income and in the debt.

 

Generally: If you file Form 8379 with a joint return electronically, the time needed to process it is about 11 weeks. If you file Form 8379 with a joint return on paper, the time needed is about 14 weeks. If you file Form 8379 by itself after a joint return has already been processed, the time needed is about 8 weeks.

 

It will primarily benefit you if you file form 8379 and you are the spouse who is injured (the injured spouse) on a jointly filed tax return when the joint over-payment was (or is expected to be) applied (offset) to a pastdue obligation of the other spouse.  By filing Form 8379, as the injured spouse you may be able to get back your share of the joint refund that was initially taken by the IRS to settle a debt that was owed by your spouse.

 

To qualify for an injured spouse claim, you must meet the following conditions:

 

You are not required to pay the past-due amount.

 

This means that the debt is one which your spouse incurred before you got married or that the debt is one for which only your spouse is liable.

 

Form 8379 lets you (the “injured spouse“) get back your portion of a jointly-filed refund if it’s seized or offset to pay your spouse’s debt. You must file jointly to use this form. Filing an 8379 will delay your federal refund by up to 14 weeks.

 

But it could — if you file the injured spouse form allow you to get back a portion of the refund.

 

As an injured spouse, you are in essence asking the IRS to pay attention to whether you or your spouse has the refund and who has the debt. 

 

It’s not just federal tax debt that gets collected. A potential refund could be used to offset past-due child support, defaulted student loan payments, state or local taxes, or any other money owed to a state or federal agency. The IRS will inform you and your spouse if an offset takes place. A formal Notice of Offset will be mailed to the taxpayer’s address, which gives the taxpayer time to respond by filing Form 8379 as an injured spouse [source: IRS].

 

For example, if you were newly married, and were filing taxes jointly for the first time and you always filed individually in the past and you were used to getting a nice refund and your spouse doesn’t usually receive a refund because the IRS garnishes any tax over-payments to cover past-due student loans–you could potentially file as an injured spouse using form 8379.

 

Once you file as a couple, your refund will be used to cover your spouse’s back student loan payments. By filing for injured spouse relief, you are asking the IRS to keep your refund away from your spouse’s debt.

 

The IRS takes many things into account when calculating how much the injured spouse might be due. There are two formulas used, including subtracting your share of joint liability from your share of the credits and income. There is also a separate tax formula, which looks something like this [source: IRS]

 

IRS Formula:

 

(Injured spouse’s separate tax liability / Total of spouses’ separate tax liabilities)
x Joint tax liability shown on return= Injured spouse’s share of liability

Instructions for filing…

Innocent Spouse

By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) “improperly reported items or omitted items” on your tax return.

 

The IRS will figure the tax you are responsible for “after” you file Form 8857!

 

In contrast, as mentioned above an injured spouse is someone “whose tax refund is used to cover financial obligations” of a current or former spouse.

 

Please note that the financial obligations can be outside of your federal income taxes as mentioned above!

 

You are an injured spouse if “your share of the over-payment” shown on your joint return was, or is expected to be, applied (offset) against your spouse’s legally enforceable past-due debts.

 

IRS Definition:

 

Innocent spouse relief provides you relief from additional tax you owe if your spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.

 

If you qualify for Innocent Spouse Relief, you “will not” be held responsible for your spouse or ex-spouse’s unpaid taxes.

 

You may qualify as an Innocent Spouse if all of the following are true:

 

*You filed a joint tax return.

*Due to the circumstances, it would be unfair to hold you liable for the unpaid taxes.

 

Am I responsible for my spouse’s debt?

 

If you were married when your spouse incurred the back taxes, then yes.

When you file jointly, then you assume “joint and several” liability.

 

Instructions for filing…

You must file Form 8857, Request for Innocent Spouse Relief, to request any of the methods of relief. Publication 971, Innocent Spouse Relief, explains each type of relief, who may qualify, and how to request relief.

 

What is the benefit of purchasing a home as it relates to the filing of my income taxes?

 

If you purchase a home you will enjoy the benefits of your own dwelling (privacy, equity build up, peace of mind and the like) along with a number of potential tax advantages at the federal and possibly state level as well.

 

Those advantages will be unique to you based on your income, family size, state of residence, loan amount, real estate taxes paid, interest paid, whether you have mortgage insurance and the timing of your purchase among other factors.

 

It is important that you put yourself in position for success by knowing on the front end whether you are properly prepared to purchase and you know how you will benefit in a proactive way–not after your purchase.

 

What effect does interest and investment income have on my taxes?

 

It depends on the amount and whether the interest and/or investment income was earned inside or outside of your retirement account.

 

If earned outside of your retirement account(s) you may have to pay annual taxes at your ordinary income or capital gains tax rate depending on the type of account and the amount of your income.

 

Your family size and whether you itemize deductions and other factors will have some effect on the overall taxes that you will pay or the amount of refund you will receive.

 

If earned inside of your retirement account(s) you may defer or possibly avoid taxation until your retirement years or possibly later depending on the “type” of investment and your (including your spouse if filing jointly) overall income at the time of retirement and the years thereafter.

 

Conclusion

 

Taxing Subjects can be a broad area and this discussion only touched the surface as far as taxes are concerned.

 

Even so, your high level of comprehension and proper application of the subject matter that you learned in this discussion that you can use in your life at this time (or later on down the road) can put you far ahead of those who go about their daily life with no real concern or understanding of their tax position and where they want to go in life.

 

Also be aware of and look for ways that you can improve your tax position in other areas outside of your income taxes.  Can you improve on the payment of your real estate taxes, ad valorem taxes, sales taxes, utility fees, telecommunication fees and other taxes or fees that are not defined as taxes but have the same effect?

 

All the best toward paying less and continued success…

 

 

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