Tasury— . Jax Rew dual income ar tax year beginning US. indivi ment of the AUe= For the year Jan. 1% bec8 Your first name and initiq 5 eL ———, spousels frst Oo} ay mber and Five Nasty Tax Surprises And How To Avoid Them by MSN Money expert, Jeff Schnepper (NAPSA)}—TheInternal Revenue Code canbefull of nasty surprises. Heafive to watch outfor. 1. The sponsible party surprise: Congratulations! You've been invited to serve on a pstigious nonprofit’s board of dictors. Surprise! You’ve just exposed yourself to potential taxes that can’t even be discharged in bankruptcy. It’s called the “sponsible party” rule. If your charity has employees, taxes have to be withheld on their pay. If not, the IRS can go after the charity and anybody serving that organization who qualifies as a “sponsible party.” Fortunately, the’s a special exemption for unpaid volunteer board members of charities not involved in the day-to-day financial activities of the organization, and with no knowledge of the failu to fork over the taxes. 2. The debt-discharge surprise: You told your cdit card companies that, unless they duce your debt, you’ going to file for bankruptcy. They lowed your liability by $5,000 so you can pay off the balance over 24 months. Surprise: That duction is now ordinary incometo you and could cost you as much as $1,750 in additional income tax. Unless shelted by the umblla of bankruptcy, debt duction psents accession to wealth and is consided taxable income. 3. The Social Security surprise: Depending on your income, as much as 85 percent of what Social Security pays you may be subject to income tax. The government says you' getting your con- tributions turned tax-fe in the 15 percent not taxed. 4. The unemployment surprise: Like many others, you lost your job. At least you have unemployment. He’s the surprise. Unemployment is taxed like any other income. offs I You may be a sponsible taxpayer, but the U.S. tax code is filled with complexities that can blindside you and cost you money. 5. The marriage surprise: Joint and several liability. Most married couples file joint turns which normally provide a lower total tax for the couple than they would pay if they filed separately. Filing jointly, however, cates “joint and several” liability: both, or either spouse, is sponsible for the full tax. Let’s say two years ago, you filed a joint turn. Last year, you divorced and have no idea whe your “ex” is. The IRS audits your joint turn and discovers he had a job and didn’t port $20,000 in cash income. The IRS now wants all of the taxes owed from you. You signed the joint turn—you’ liable for the taxes. You can ask the IRSforlief as an “innocent spouse”if: You did not and had no ason to know about the understatement and it would be inequitable to hold you sponsible for the deficiency. You apply using Form 8857, downloadable from the MSN Money Website. For mo tax sources and tips, visit MSN Money at www.money.msn.com or use the tax tools in Microsoft Money softwa. Jeff Schnepper writes for MSN Money.
