Divorced in 2007, now I must owe a penalty for underpayment of taxes?

I was divorced in 2007. I received $61,500 in alimony, and did not earn any wages since I am a full-time student. My adjusted gross income for 2007 is $57,611.

I did my tax return using TaxCut. A Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, was generated automatically. Using the Short Method of computing the penalty, the amount due is $381.

I have two questions:

1. For the 2006 tax year, I filed as Married Filing Jointly, and our total tax liability was $12,059. Because of the divorce and my subsequent filing as a single person in 2007, can I claim a Waiver to avoid the penalty?

2. If I must pay the penalty, do I have to file quarterly Estimated Tax Payments for 2008? My alimony for 2008 will be around $40,000. Should I base the estimated payments on this amount?

Thank you,
Sally

I can't answer #1, but someone else will come along who can.

#2 -- yes, pay quarterly to avoid this problem! Another solution -- if you get even a part time job, have them withhold at a higher rate (for example, if you would normally claim a withholding allowance of one or two, do zero) -- that should help offset what you owe on the alimony income.

Puck,

Thank you. I will take your advice on item #2. Hope someone has an answer for #1 which is more pressing.

Sally

You can probably reduce that penalty substantially by using the Schedule AI of form 2210. This is because you probably received very little income in early quarters versuis lter quarters, thereby reducing the required installment in early quarters, and hence reducing the penalty.

For 2008 you can wither pay 1/4 of the amount of your 2007 tax, or use the AI Method again to calculate what you should pay each quarter.

An Excel spreadsheet program to calculate those AI quarterlies for either 2007 or 2008 is at www.edcosoft.com/qitc.html. It's free to download and try out and only $18 for the full year program if it's what you want. P.S. It's the only one avilable for a current year (2008) although Tax Cut should have offered to do it for 2007 for you free when you finished your 2007 return.

I am hoping this is a fairly simple tax question for circumstances that may seem complicated so here goes. I am recently divorced and now receiving SSD as a result of injuries sustained from having a spouse attempt to murder me in June of 2003. She ended up netting most of my net worth including retirement monies for this and as a result I've lost any additional savings in the process and the ensuing legal charade. I also have considerable debt that resulted from her actions and the courts and I refuse to pay it or bear the blot of bankruptcy for someone else's and the law's crimes. I had a supervisor assault me and nearly kill me while working at Raytheon in Tucson and they also won a court award and legal settlement against me for a retention bonus and relocation paid me despite Arizona DES paying my claim agreeing I resigned for cause. I paid the former spouse taxes on the blood monies paid her, and NY now filed a tax lien for a 401K disbursement that was overlooked on a return for TY 2003. I was basically homeless and near dead and had no way to manage any of this. She ended up with the whole amount anyway and I paid taxes to her on it. My questions are:

1) I understand that SSD is not garnishable, can the courts in Arizona or any creditors take savings or property to cover the debts and can they take interest earned on the SSD monies not spent each month? I essentially exhausted over $100K in credit and a perfect credit rating was destroyed in this mess as the courts held assets for too long and I was not able to work as a result of my injuries and the law did nothing to help.

2) Can NY sieze monies from the SSD monies paid me or the interest I accrue? And for both questions would a Roth IRA protect the gains and would I need to wait for the seasoning period of 5 years since I am already disabled?

I have no property or savings left that would predate the divorce or SSD award and the award was just made last month so I've had not much time to figure this out. I am appealing the NYS Tax lien since this really is not my tax bill but would like to back that up with something that is a little more definite since leaving the Fox to guard the hen house never worked as it seems and I don't trust NYS at all. If needed I'd move from here to protect my rights and if that meant moving just so not to pay NYS Tax ever again even on what little interest income I will make I'd do it in a heartbeat, assuming I still had one.

Terry Jones

wow. You seem to be one unfortunate dude. Actually, perhaps you are quite fortunate to still be alive. This is more a CPA question. Unlikely you are to get answer here, Luke.

Terryallenjones,

I agree with 1_more_opai, You have had too many unfortuante circumstances/situations in your life. For some reason, you are still with us, and that is good.

Many states do not tax SS benefits. Here is a link:
http://ssa-custhelp.ssa.gov/cgi-bin/ssa.cfg/php/enduser/std_adp.php?p_faqid=1356&p_created=1093631964&p_sid=wBERAl9j&p_accessibility=0&p_redirect=&p_lva=&p_sp=cF9zcmNoPTEmcF9zb3J0X2J5PSZwX2dyaWRzb3J0PSZwX3Jvd19jbnQ9MjYsMjYmcF9wcm9kcz0mcF9jYXRzPSZwX3B2PSZwX2N2PTEuNyZwX3BhZ2U9Mg**&p_li=&p_topview=1

Neither Arizona nor New York tax SS benefits. But interest earned on these benefits could be taxed if the interest plus your other income (not SS benefits) were high enough to go beyond the standard deduction.

Here is a link where you can determine if your income would be taxed by a state:
http://www.retirementliving.com/RLtaxes.html

An IRA will protect your money from creditors up to $1,000,000. That is while it is in the IRA. Once you take the money out of the IRA you should keep that money separate from all of your other monies so it is traceable to the IRA. Use a different bank account to receive the IRA money, and perhaps a different bank.

Distributions from a ROTH IRA come out in an manner ordered by law. First to be distributed is our Annual Contributions. Second to be distributed is Conversion Amounts, and last to be distributied from the ROTH IRA is gains.

We can take our annual contributions from our ROTH IRA at any time for any reason without tax or penalty.
Converted amounts need to be in the ROTH IRA for 5 years, then they can be distributed without tax or penalty. Taking the conversion amounts from the ROTH IRA during the 5 year clock, may result in a penalty. You can use one of the accepted exceptions to avoid the penalty during this time. Each Conversion Amount has it's own 5 year clock.

Gains distributed from the ROTH IRA may be subject to tax and penalty. Taxes and penalty will generally apply if the IRA owner is younger than age 59.5 years. Using one of the accepted exceptions to the penalty would void the penalty, but taxes would remain an obligation of the IRA owner. At age 59.5 years all distributions from the ROTH IRA are free from tax and penalty.

Thanks 1_more_opai you are right and it has been a tough go that is for sure. This has nearly cost me my life more than once and everything that working my entire life, over 20 years, as a Sr. Software Engineer would provide. That and I can't work now which is more tragedy. And this is the divorce law in this country, it is insane. The women get away with murder and I have to pay for it? It makes no sense at all. This is why I'll never remarry and have no faith in our government or the Police and wonder now why I ever paid taxes in the first place. They did nothing for me. I see all these laws and really ask you these questions but know full well none of these will be followed and the banks, IRS, and any tax authority can and have done whatever they want but I thought I would at least try and see.

An example comes to mind and recently I returned to E*TRADE brokerage since I now have assets again and opened an account with them prior to moving back to NY. They claimed they opened a checking and brokerage accounts and mailed me checks and Visa card and accepted my $4,000.00 deposit. They waited for me to begin moving and I am glad I did not sit in California waiting for them to mail things to me because they were never sent. Once I made it here to NY I find they decided to close my account and then refused to return my deposit expecting me to notarize some document, keep in mind I am handicapped, and have been homeless from this, also poor since I had no assets for over 2 years, and they retain the first SSD monies I receive and fail to return it. The point is that once someone has your money, you may never see it again and the courts here are worthless, you will never ever ever accomplish anything with them our your government. Anybody that has someone murder him in his own home, and then has to pay her for it, will never get any protection under the law or the courts. I'll give my money to someone else and if I need to leave NY to not pay them one more cent in taxes I will do that also. Thanks again for your kind comments and the suggestions.

Terry

Clydewolf,

Thanks and I'd say you are right, this was much too much and I would never have guessed that this could happen in the good old US of A. I would never have married had I known that she would do this as she had planned, black widow is the term, I have others, and that it was possible she'd get away with it as she has. The State of NY sponsored my death at her hand and it was premeditated. Sickening.

Thank you for your help and that seems to make sense. I have no prior conversions or existing funds at all since I've been basically destitute thanks to my former spouse and the courts so any money that goes into the Roth would be Social Security SSD amounts and hence I'd expect from what you say, not taxed, sheltered, and can be used at any time, is that correct then? I had planned to keep it at one brokerage house and just use the funds from there. I am disabled so the age restriction should not apply if I read that correctly?

Thanks Again,
Terry Jones

Terryallenjones,

You need earned incme to make an IRA contribution.

You appear to understand the workings of a ROTH IRA.

For more information regarding IRAs read IRS Pub 590, Individual Retirement Arrangements.

I know someone in a similar situation and she had to contact a CPA to figure the whole thing out. I suggest you look into the same just to be on the safe side.