Income From Stocks

Today TaxMama hears from Anna in Oregon, who is worried. “We received a letter from the IRS. My husband did not file for 2006 and 2007 because he did not make any money from his stock. I did file mine though. In 2008, my husband had a stroke, he is currently disabled and gets SSI. the Social Security Administration sent us a letter because they receive IRS alerts that he has unreported income from stocks. Actually, we are not getting a cent. The market is down and he lost a lot. We are in a big financial troubles just trying to pay the mortgage. So my question is: Are we going to lose his SSI, Our only financial source?”

TaxMama answers Tax Questions

Dear Anna,

It sounds like you’re having a tough time right now. I hope things improve for you.

But I have bad news for you. Yes, you are about to lose some of your husband’s SSI – if you do nothing.

After all, when there are stock sales that take place, even at a loss, IRS has no way of knowing you had a loss – unless you tell them.

Solving the problem is easy. Prepare your husband’s tax returns for those years and file them. Since he had losses on his stocks and little or no other income besides Supplemental Security Income, he probably won’t
owe too much money.

Why might he owe money?

Because when you are married and file separately, you lose the $44,000 tax-free portion of the SSI income. Suddenly, 85% of ALL the SSI he receives becomes taxable.
http://www.irs.gov/publications/p915/ar02.html#en_US_publink100097889

Now I have good news for you. What I suggest you two do is to take the notices, and all his data – and YOUR 2006 and 2007 tax returns to an experienced tax professional. Perhaps they can file amended joint returns for those years. That will probably make all the taxes go away – and IRS won’t touch his SSI income.

The fact that your husband is disabled does not mean that he stops filing tax returns and behaving responsibly. If he can’t do these things, it’s your responsibility to take over.

And remember, you can find answers to all kinds of questions about how not to lose your Social Security benefits and other tax issues, free. Where? Where else? At TaxMama.com

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