Common situation: You’ve remarried and both you and your spouse have children from previous marriages. If you leave most of your fortune to your surviving spouse, it appears at first glance that you’ll face no major estate-tax concerns. But there’s no guarantee the money will ever wind up in your kids’ hands. The current estate-tax exemption can cover direct transfers to your children of up to $1.5 million, but that’s all.
If you hit the jackpot at a casino, racetrack or other gambling venue, you can reduce the tax on your winnings by offsetting those winnings with your gambling losses. But you must keep good records and those losses must be claimed as a miscellaneous itemized deduction on your tax return.
Do you help parents, in-laws or other elderly relatives with their living expenses? Maybe you occasionally pitch in with your relative’s expenses, but you aren’t able to claim a dependency exemption. Reason: You don’t provide at least half of that person’s annual support.
If you plan on taking a business trip in the coming months and bringing your spouse along for the trip, there is a way to write off travel costs attributable to both of you, regardless of whether your spouse works for your company.
Q: My daughter graduated from college, and she gave $500 to the Red Cross after the hurricane. She probably won’t itemize deductions this year. Is there any way she can deduct this donation? B.K., Red Bank, N.J.
Q: I read somewhere that employees can now spend the money in their flexible spending account after Dec. 31. My employer hasn’t given any notice about this. Is that extension automatic? S.M., Cincinnati
Q: I’ve heard that I’d have to pay tax on a home sale if I don’t use the profits to buy another home. I didn’t think that’s true. Am I correct? O.D., New York City
Q: I have two IRAs that I established years ago. One was started for deductible contributions when I was young; the other has nondeductible contributions. Now that I’m over age 591/2, I want to withdraw some of that money. Can I withdraw money only from the nondeductible IRA? R.R.S., Key Biscayne, Fla.
The first piece of our audit series explained how you can breeze through an IRS "correspondence audit" conducted through the mail. But the stakes are considerably higher—as is the stress level—if you’re tapped for an IRS "office audit."
An experienced tax adviser can provide a security blanket if you’re intimidated by the process. And he or she won’t likely take the "bait" if the auditor goes on a fishing trip.