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ID Form 8857: What You Should Know

I will provide a few examples to help you with that section of the form.  Example 1: Let's go back in time to 1975.   You own a real estate business that produces annual revenue of 150,000 and an effective tax rate of 33%. If you receive any income in the current tax year of 1,000 in income from your passive real estate business and a tax liability of 2,150 in tax, you could receive up to 4,000 in innocent spouse relief.  Example 2: Let's say you are married for 40 years, but you are the sole provider for your 6-month-old daughter. She is the beneficiary of your joint retirement account, she is not a dependent, and neither you nor your spouse can be required to contribute to the account. If you receive no income from your real estate business and have a tax liability of 2,150 in tax, you could receive up to 800 in innocent spouse relief.  Example 3: Let's say you are a professional photographer. If you own one piece of professional photographic equipment, you qualify for an exemption of the 25,000 caps. You must report that equipment item, which you do. A few months later, you receive additional equipment of a similar type, but which must be valued at more than 200. Your tax liability is now 35,000. A tax credit of 15,000 would be given to reduce your tax liability to 14,000. (This is a one-time credit that may not be carried forward.)  You would be eligible for innocent spouse relief if: You qualify for an over exemption and are not required to purchase additional equipment. Your taxable income does not exceed 3,750 for the current tax year Example 4: Let's say you and your spouse are the sole contributors to a retirement account. Your taxable income is 25,000, and your spouse does not contribute to the account. A year and a half after the account was created, the IRS has audited the account and determined you owed income tax of 5,100. You are not required to answer any questions on this tax audit. Two years and three months later, the IRS audited the account. You received a new notice that your balance was 5,500 and would need to report that amount.

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