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CGCPA, CPA
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My 2009 Federal Tax Return is being audited. The question

Customer Question

My 2009 Federal Tax Return is being audited. The question is that I had made IRA Contributions of $6,000 for myself and $6,000 for my wife. Because my wife had earnned income of $23,000 while working for the University Of Arizona which comes under the Arizona State Retirement System, they are disallowing her contribution and thus charging me additional income tax on the $6,000 plus $96 penalty. Is there anyway to fight this or minimize the amount I have to pay back on or before October 19, 2011?
Submitted: 3 years ago.
Category: Tax
Expert:  Jax Tax replied 3 years ago.

Jax Tax : Engendered if she did not have income, your income would allow her deduction
Jax Tax : The deduction does phase out however at high income levels which may be what is going on. What is your AGI?
Jax Tax : The AGI phase out for married joint is $159-$169k. Any where in between and you deduction is limeted. Over, $0. Under 100% of $10k, if over 50, $12k.
Customer:

Don't understand, our AGI is much less than the $159-$169K, in fact our AGI is less than $100K. What shall I do on this matter?

Jax Tax : If you filed married joint, there should be no issue with you both contributing to an IRA. You did contribute to two different plans, right?
Jax Tax : You would have had to contributed to separate plans.
Customer:

Yes we did, she has her IRA and I have mine. Her amount of earned income covered by the ASRS was around 15K

Customer:

Does the $38 I just paid going to cover all the questions I have on this issue or am I going to fork out $38 for every question?

Expert:  CGCPA replied 3 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

Based on the information you have provided you are entitled to the full deduction for your spouse's IRA contributions. The following chart is extracted from IRS Publication 590. The entirety of the publication is available at the IRS web site http://www.irs.gov/ The Publication is too lengthy to reproduce here but you should access the IRS web site,print a full copy, and show it to the auditor.

 

Table 1-2. Effect of Modified AGI1 on Deduction if You Are Covered by a Retirement Plan at Work

 

If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

 

IF your filing
status is ...
AND your modified adjusted gross income (modified AGI)
is ...
THEN you can take ...
single or
head of household
$56,000 or lessa full deduction.
more than $56,000
but less than $66,000
a partial deduction.
$66,000 or moreno deduction.
married filing jointly or
qualifying widow(er)
$89,000 or lessa full deduction.
more than $89,000
but less than $109,000
a partial deduction.
$109,000 or moreno deduction.
married filing separately2 less than $10,000a partial deduction.
$10,000 or moreno deduction.
1 Modified AGI (adjusted gross income). See Modified adjusted gross income (AGI), later.
2 If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the "Single" filing status).

 

 

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CGCPA, CPA
Category: Tax
Satisfied Customers: 3742
Experience: over 40 years experience in tax matters
CGCPA and other Tax Specialists are ready to help you
Expert:  Jax Tax replied 3 years ago.
Ifyour other questions are related to the same subject, I can answer them. Just so you understand, your wife does not have to have income to make IRA contribution. Since you are married, your income can support the credit. Just so you know.
Did you have other concerns?
Customer: replied 3 years ago.
I think I knew this, but correct me if I'm wrong, in order to be able to contribute to our IRA accounts, and take the tax credit, we must have earned income in the amount we are contributing or more, right? If I took credit for having contributed $12,000 (6K for each of us) we must have had at least 12K of earned income, right? I do think that the IRS are screwing with us because they know we don't have a staff of lawyers ready to defend us so they feel they can get away with it.
Expert:  Jax Tax replied 3 years ago.
You kind of got it. Your AGI less the IRA adjustment must be $12000. You are fine though.

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