Joint Annuity Distribution Question

[MsTabbyKats]

Taxpayer & spouse have a joint annuity. Taxpayer is primary holder. A distribution is taken, with taxable amount @ $10,000.

They want to file separately.

Taxpayer reports all income. Then he deducts half of the income on Line 21....so he only pays tax on his half of the taxable distribution.

Spouse lists her half on Line 21.

Does this make sense....or any other suggestions?

Thanks..............

[Mr. Pencil]

he deducts half of the income on Line 21....so he only pays tax on his half of the taxable distribution.

Spouse lists her half on Line 21.

That's good, but warn your clients the IRS computers might question it anyway. No big deal, that's just them doing their job. Make sure you keep the full documentation, showing joint ownership and the distribution/transfer transactions. Also check the boxes for third-party rep, so you can easily respond if they get IRS letters.

[Guest Taxed]

Last year I had a couple who liquidated a rather substantial brokerage account in the name of the husband and 50% of the proceeds was given to the wife as part of their divorce property settlement. All 1099B and 1099 DIV were issued to the husband.

We did a paper filing with a cover letter explaining exactly how we divided the cost basis and capital gain for tax purpose.

This year they got a CP2000 and we send copies of returns with that cover letter and also made a call to IRS. Matter closed.

So as Mr. Pencil pointed out, warn your clients that a CP2000 may be coming but it has to be explained to IRS.

[kcjenkins]

And just remember, YOU should not, at any point, feel defensive if they do have problems. Often clients tend to blame us for problems that their decisions created. If they do, politely reminding them that it all goes back to how THEY set the account up originally puts it right back on them. And don't forget to charge for any of your time spent dealing with THEIR problem.

[MsTabbyKats]

And just remember, YOU should not, at any point, feel defensive if they do have problems. Often clients tend to blame us for problems that their decisions created. If they do, politely reminding them that it all goes back to how THEY set the account up originally puts it right back on them. And don't forget to charge for any of your time spent dealing with THEIR problem.

LOL....this won't happen

This was actually a discussion between my friend who is a CPA and me, about her recently divorced parents....and the mumble jumble in the divorce decree....and the wording of the lawyers.

We were trying to figure out the best way to report his income, and hers....so that he didn't get stuck paying tax on all her income.

I told her I'd "post in the forum" to see if people agreed with me, or perhaps could shed some light on another direction to take.

Thanks for the input

[kcjenkins]

Look at the newest posted thread "Tax Traps", for the section on divorcing clients for some warnings to consider. BTW, Tabby, my reminder above was not directed to you, specifically, but just a general reminder, mostly, in my mind, directed to 'newbies' in the profession. We experienced ones have already learned not to let the clients bully us.