1997 Tax Help Archives  

Adjustments to Income

This is archived information that pertains only to the 1997 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

I want to establish an 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 IRA. Beginning in 1997, 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).

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.

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 Schedule D (Form 1040), 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.

I am considering a tax shelter investment. How can I tell if the tax shelter is "abusive"?

An "abusive tax shelter" is a marketing scheme that involves artificial transactions with little or no economic reality. Generally, you invest money to make money. An abusive tax shelter offers you inflated tax savings based on large write-offs and credits. It is often out of proportion to your investment. An abusive tax shelter exists solely to reduce taxes unrealistically, and thus receive an economic benefit. A legitimate tax shelter exists to reduce taxes fairly and also produce income. As in any investment, a real tax shelter involves risks, while an abusive one involves little risk, despite outward appearances. 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 frequently much greater than one-to-one. A series of tax laws has been designated to halt abusive tax shelters. For additional information, refer to Tax Topic 454, Tax Shelters.

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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