By Anthony S. Latella

The Unsuspecting Spouse

Is a few dollars in income tax savings worth the ultimate headache? If your spouse is self-employed or owns their own closely held corporation, filing a joint income tax return could become your worst nightmare! Under current Internal Revenue Service (IRS) laws, the filing of a joint return makes both spouses jointly and severally liable fir the income tax at filing and any subsequent additions to the tax via IRS audits or discovery of additional income or inflated expenses. Note: Under Taxpayer Bill of Rights II the IRS and General Accounting Office are studying the effects of the current standard to one of proportionate liability standard (i.e., spouses income $10,000.00 total income on the tax return $50,000.00, therefore 1/5 or 20% liability).

In my experience, I've seen many an unsuspecting spouse end up with large income tax liabilities after a divorce or legal separation. The old adage "penny wise and pound foolish" oftentimes has more applicability than we give it credit for. I recommend you have your income tax preparer complete your return two ways -- 1) jointly, and 2) married filing separately claiming you as a dependent is you don't work. Then, based on the end result, decide which manner of filing best suits your situation, looking at your spouse's vulnerability to an audit and/or difficulties with their business(s). True, your spouse will pay a little more tax, but you will have peace of mind knowing your assets are protected from the IRS.

In my next article, we will expand upon these points by looking at what filing jointly does by exposing your assets to the IRS. I welcome your questions and comments.

This article is written by Anthony S. Latella, a specialist in income tax matters and an "insider" for many years. Mr. Latella began a 28 year career with the Internal Revenue Service as an IRS agent. His meteoric rise through the agency speaks for itself. He ultimately achieved a grade 15 Division Chief status, supervising over 400 auditors on both corporate and individual levels. Mr. Latella retired in 1995 at 49 years of age to work as a tax consultant in the private sector, along with real estate brokerage. DOL is pleased and fortunate that Mr. Latella has joined our staff of experts. E mail us your tax questions and check his column for weekly updates. He can also be reached by telephone at (810) 228-7800.


Posted on Saturday, February 24, 2007 at 01:58PM by Registered CommenterSite Administrator in | Comments Off

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