For the current year, Val and Pat White filed a joint return. Val earned $35,000 in wages and was covered by his employer's qualified pension plan. Pat was unemployed and received $5,000 in alimony payments for the first 4 months of the year before remarrying. The couple had no other income. Each contributed $5,000 to an IRA account. The allowable IRA deduction on their current year joint tax return is:

A. $10,000

B. $0

C. $7,000

D. $5,000

【答案解析】A

Choice "a" is correct. In 2014, taxpayers can contribute and deduct up to $5,500 per year to an IRA, and alimony is considered earned income for IRA purposes. For couples filing a joint return where at least one spouse is an active participant in a retirement plan, the deductible portion of the contribution is phased out. For a spouse who is an active participant, the phase-out range in 2014 begins at AGI of $96,000 and is complete at $116,000. For a spouse who is not an active participant, but is married to someone who is, the phase-out range begins at $181,000 and is complete at $191,000 (2014). The earned income for IRA purposes here is $40,000 ($35,000 + $5,000), which is below both phase-out ranges, so each spouse receives a deduction of the $5,000 contribution actually made.

Choice "d" is incorrect. Pat's alimony is deemed "earned income" for the IRA contributions. However, even if Pat had no earned income, a spouse with no earned income can deduct up to $5,500, provided the couple's combined earned income is at least $11,000.

Choice "c" is incorrect. The $2,000 was a pre-2002 rule for IRA contribution limits for individuals and is a distractor in this case.

Choice "b" is incorrect. When a taxpayer or taxpayer's spouse is an active participant in a pension plan at work, the full deduction is allowed if the earned income of the couple is below the phase-out ranges (as is in this case).