August 1996

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Still have questions? Still confused about the tax changes?

E-mail us. We'll post answers here to questions surrounding these changes.

QUESTION: Regarding 1997 IRA contributions: Please clarify the point for me on the amount(s) that can be contributed for two working spouses. Joint income is over $100,000. While I recognize that we are "exempt" from taking the tax deduction for the contributions, can we each make a $2000 payment to our separate IRAs? It has been my understanding the maximum amount was $2,250, whether it was a combined account or two separate accounts. Thanks in advance.
-- D. Sims Haneca

ANSWER, from Tom Myers, senior tax manager: Under current law, if both spouses have earned income of $2,000 or more, the maximum is $4,000. the $2,250 limit only applies when one spouse has earned income. Note that the Small Business Job Protection Act of 1996, when signed, would increase the $2,250 limit to $4,000 for couples with one nonworking spouse.

QUESTION: Could a FASIT be owned by a partnership, e.g. could Deloitte & Touche form a FASIT if it wanted to enter into a securitization transaction?
-- David Howard

ANSWER, from Tom Myers, senior tax manager: The ownership of a FASIT is generally required to be held entirely by a single corporation. There is a special transitional rule for trusts, but partnerships are not included.

If you're not familiar with these, a FASIT (Financial Asset Securitization Investment Trust) is a type of statutory entity that would exist under the new tax laws. They will facilitate the securitization of debt obligations such as credit card receivables, home equity loans and auto loans. A FASIT will generally not be taxed; rather, its net income flows through and is taxed to the owner.

QUESTION: I have two questions.
1.) Will the homemakers IRA be fully deductable regardless of the husband's income or availability of a retirement plan for him?
2.) Will the SIMPLE be based on a percentage of salary like the 15% of the SEP or will it be all of earned income up to $6,000 like the IRA (to $2,000)?
-- Ira Isaacs

ANSWER, from Tom Myers, senior tax manager:
1) The change pertains strictly to the amount of the maximum contribution. No changes were made to the deductibility tests for contributions.
2) The new SIMPLE plans replace salary reduction SEPs and are a kind of simplified 401(k) plan. Consequently, contributions will be based upon a percentage of income up to the $6,000 limit.

QUESTION: Will the Adoption Credit apply to expenses incurred in 1996? What if the expenses were prepaid in 1996 for an international child arriving in 1997?
-- Dan Blankenship

ANSWER, from Tom Myers, senior tax manager: Unfortunately, the credit will not be available if the expenses are paid during 1996. The new provision is applicable for tax years beginning after 1996. Since individuals are cash basis taxpayers, the new provision would apply to expenditures after Dec. 31, 1996.