Tax Info Blog

Non-Resident Spouses and the Long Arm of the IRS

Q: What if you live in a foreign country, your spouse is a nonresident alien and does not have a SSN, and all your income was earned in that country and is less than the Foreign Earned Income Exclusion? Would it still matter whether you filed joint or separate returns?
Alberto, Outside the USA

A: Yes, it would.  As you probably know, U.S. citizens and residents are responsible for paying tax on worldwide income (the fact that it's under the Foreign Earned Income Exclusion is not material here).  Also, a taxpayer considered married at any point in the tax year is considered married for the whole year.  So, what to do if you are an American, your wife is not, and you live and work in a foreign nation?

Unemployment Compensation and FICA

Q: Will unemployment compensation be subject to FICA?
Kyle V

A: No.  It makes sense that it might, though.  Unemployment compensation is supposed to make up for lost wages, which are themselves liable for FICA.  However, unemployment compensation is better thought of as an insurance policy, albeit a socialized one run by the government.  Just as insurance policies are not subject to FICA, neither is unemployment insurance.  You do have to pay income taxes on it, though, under the theory that the "insurance premiums" (FUTA taxes) were deductible to the payer (your employer).

2008 HSA Limits Released

The Treasury Department released the 2008 HSA limits today.  Beginning this year, the inflation-adjustment limits will be released every Spring, not every Fall (as is the case with other tax code provisions).

There is one juicy nugget in there that allows people to sock even more money away without taking on any additional risk.

The overall limits are the following:

Turning Back Time on Actual Expenses vs. Standard Mileage

Q: I know that the IRS prohibits using the actual expenses method during the first year of vehicle usage and then using the standard mileage deduction for the succeeding years.  However, I have tried to circumvent this rule:

I want to shift to the standard mileage method this year and subsequent years. Therefore, I filed an amended tax return for the first year of the vehicle's use and changed my vehicle deduction from actual to standard mileage. Then I included a payment with the return to make up for the resulting tax deficiency.

I then filed my current return for 2006 using the standard mileage method which is easier and allows me a larger deduction this year. Is this allowed?

PMI Is Never Deductible...Or Is It?

Q: I've always heard that private mortgage insurance (PMI) is not tax-deductible.  However, a friend of mine told me it might be under limited circumstances.  What's the real truth?
Anonymous

A: Normally, PMI is a non-deductible cost of owning a personal residence (much like homeowners association fees, insurance, etc.)  However, Congress passed a bill in 2006 to have a one-time only deduction for PMI under very limited circumstances...

Tax Season Is Over!

And it's time to party...

Final Tax Runup Underway

Probably won't be posting between now and the end of tax season.  I'll see you on the other side...

Send in your emails, and I will answer them in the blessed Spring.  In the meantime, see the following fun cartoon about estimated income taxes and Donald Duck...

State and Local Government Employee Deferred Comp Plans to Get Roth Option

Thanks to 403b-Wise for this.  A little-known provision was tucked into the Senate version of the Iraq supplemental bill by Senator Ron Wyden (D-OR).  It allows state and local government employees who participate in Section 457 "deferred compensation" plans to direct their elective deferrals in as "Roth contributions."

This allows state and local government employees to have the same choice of pre-tax or after-tax (Roth) deferrals that most other Americans covered by a workplace retirement plan has.

HSAs and FSAs: Can You Do Both?

There are lots of advantages to health savings accounts (HSAs): whatever you don't use, you keep; the money is tax-deductible, tax-deferred, and tax-free on medical distributions; you actually become a consumer of health care, not simply shuffled through a baffling system.

There are lots of advantages to flexible spending arrangements (FSAs): the use of a tax-deductible account without having to adjust to higher deductibles; making otherwise-deductible items like eyeglasses, Rx copays, and dental visits deductible; being able to have a grace period on "use it or lose it" until March.

At the same time, there are downsides to both.  In an HSA, the biggest adjustment to get used to is the higher deductible (though this is only an early shock), as well as having to shop around for health care.  With an FSA, the dreaded "use it or lose it" creates bizarre multiple-eyeglass purchases every holiday season.

Conventional wisdom is that these two accounts are like fire and water: they can't exist at the same time.  But that's wrong, and an enterprising employer may want to look at both

New HSA Numbers Revealed

AHIP, the trade association of health insurance companies, today released updated data on health savings accounts.

Enrollment in HSA-compatible health insurance plans grew 43% to 4.5 million people.  On the account side, the number of HSAs doubled to 1.65 million accounts with assets totaling $2 billion.  31% of HSAs have more than $1000 in savings.  27% of individual-market HSA consumers were previously-uninsured.  Finally, 46% of new individual-market HSA enrollees were over age 40...