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J.K. Lasser Daily Tax Tip brought to you by TaxACT
Everyone wants to get as much back in their tax refund as possible, but tax laws are constantly added, changed, or updated. The J.K. Lasser Daily Tax Tip, brought to you by TaxACT, provide some insight into complex tax situations and offers helpful advice and guidance. Now that's something everyone can use!

The Daily Tax Tip content is provided by America's all-time best selling tax guide, J.K. Lasser's™ Your Income Tax Guide 2006 by John Wiley & Sons, Inc. Tax advice provided by The Daily Tax Tip shall not be construed as a substitute for the advice obtained or given by a certified tax professional.

• Expanded Kiddie Tax Takes Effect in 2008
  If your child has 2008 investment income exceeding $1,800, his or her tax liability generally must be figured on Form 8615, and under the kiddie tax rules, the excess over $1,800 will be taxed at your top tax rate rather than at your child rate. Starting in 2008, the kiddie tax applies not only to children under age 18, but also to children who at the end of the year are age 18 or full-time students under age 24 if their earned income is no more than 50% of their total support for the year (24.2).
• Advantages of Head of Household Status
  Tax rates are lower for a head of household than for those filing as single. The standard deduction is also higher. For a married person who lived apart from his or her spouse during the last half of the year, qualifying as a head of household allows use of tax rates that are more favorable than those for married persons filing separately.
• Possible Estate Insolvency
  If you will be appointed executor or administrator and are concerned about estate insolvency, it may be advisable to hedge as follows: (1) File separate returns. If it is later seen that a joint return is preferable, you have three years to change to a joint return. (2) File jointly but postpone being appointed executor or administrator until after the due date of the joint return. In this way, the joint return may be disaffirmed if the estate cannot cover its share of the taxes.
• Reporting Income of Deceased Spouse
  If your spouse died during the year and you are filing a joint return, include his or her income earned through the date of death.
• Unpaid Tax on Correct Return
  The separate liability election is not available where the proper amount of tax was reported on a joint return but your spouse did not pay the tax. However, equitable relief may be available in this type of tax underpayment situation.
• Actual Knowledge Bars Relief
  The separate liability election generally allows you to avoid liability for the portion of a tax deficiency that is allocable to the other spouse. Such relief is unavailable, however, to the extent that you had actual knowledge of the omitted income or deducted item that gave rise to the tax deficiency.
• Deadline for Innocent Spouse Election
  You have until two years from the date that the IRS first attempts to collect tax from you on the joint return to make an innocent spouse election.
• IRS Must Notify Non-Electing Spouse
  After the filing of Form 8857, the IRS is required to notify the non-electing spouse (or former spouse) of an electing spouse request for relief and allow the non-electing spouse an opportunity to participate in the determination. If the IRS makes a preliminary determination granting full or partial relief to the electing spouse, the non-electing spouse may file a written protest and obtain an Appeals Office conference.
• Knowledge May Bar Innocent Spouse Relief
  The IRS may try to defeat your claim for innocent spouse relief on the grounds that you knew, or should have known, that tax was understated on the joint return.
• Income Splitting Barred to California Registered Domestic Partner
  In a 2006 legal memorandum, the IRS concluded that the community property income-splitting rule allowed to California spouses does not apply to registered domestic partners, despite the California law (effective in 2005) that extended to registered domestic partners community property rights and virtually all other spousal rights and responsibilities. Thus, a California registered domestic partner must report all of his or her earned income from personal services. He or she cannot report on a separate federal return only one-half of the combined income of both partners, as he or she could if married. According to the IRS, domestic partners under the new California law are not married and Supreme Court precedent allowing married couples in community property states to split income applies only to husbands and wives.
• Nonresident Alien Becomes Resident
  Where one spouse is a U.S. citizen or resident and the other is a nonresident alien who becomes a resident during the tax year, the couple may make a special election to file a joint return for that year and be taxed on their worldwide income. Thereafter, neither spouse may make the election again even if married to a new spouse.
• Election To File a Joint Return
  Where a U.S. citizen or resident is married to a nonresident alien, the couple may file a joint return if both elect to be taxed on their worldwide income. The requirement that one spouse be a U.S. citizen or resident need be met only at the close of the year. Joint returns may be filed in the year of the election and all later years until the election is terminated.
• Spouse in Combat Zone
  If your spouse is in a combat zone or a qualified hazardous duty area, you can sign a joint return for your spouse. Attach a signed explanation to the return.
• Can Filing Separately Avoid Exemption Phaseout or Itemized Deduction Reduction?
  Filing separately will sometimes allow either you or your spouse to avoid part of the personal exemption phaseout or the reduction to specified itemized deductions. If you file jointly and have total 2008 adjusted gross income (AGI) exceeding $239,950, the exemption phaseout applies. If you file separately, the phaseout does not apply to the spouse reporting separate AGI of $119,975 or less. On the other hand, where your joint AGI is $239,950 or less, a spouse reporting AGI over $119,975 on a separate return will be subject to the phaseout although no phaseout would apply on a joint return. If for 2008 you itemize deductions, the deductions for taxes, mortgage interest, charitable donations, and miscellaneous deductions are reduced if AGI exceeds $159,950 on a joint return, or exceeds $79,975 on a separate return. If you file separately, the reduction does not apply on a separate return showing AGI of $79,975 or less. Where joint AGI is $159,950 or less, a spouse filing separately with separate AGI over $79,975 is subject to the reduction although no reduction would apply on a joint return.
• Switching From Separate to Joint Return
  If you and your spouse file separate returns, you have three years from the due date (without extensions) to change to a joint return. If a joint return is filed, you may not change to separate returns once the due date has passed. The filing of separate or joint estimated tax installments does not commit you to a similar tax return.
• Getting Married Can Raise Your Taxes
  The so-called marriage penalty is faced by couples whose joint return tax liability exceeds the combined tax they would pay if single. This is generally the case where each spouse earns a substantial share of the total income. On the other hand, if one spouse has little or no income, there generally is a marriage bonus or singles penalty, as the couple tax on a joint return is less than the sum of the tax liabilities that would be owed if they were single. Tax legislation has reduced the marriage penalty by increasing the standard deduction for married couples filing jointly to double the amount allowed to a single person, and also making the 15% bracket twice as wide.
• IRS Failure To Release Lien
  A suit for damages may also be brought in federal district court against the IRS if IRS employees improperly fail to release a lien on your property. Before you sue, you must file an administrative claim for damages. The lawsuit must be filed within two years after your claim arose. You may sue for actual economic damages plus costs of the action; the types of damages that may be recovered are similar