Sometimes, when spouses file a joint return and one spouse owes a debt, the IRS will take all or part of the refund to pay the debt. The most common scenario is when one spouse owes a debt subject to federal offset, such as past-due child support or past-due student loans, and the other spouse isn’t liable for the debt.

• Form 8888 Allocation Of Refund 2016
• Department Of Allocation Refund
• Allocation Of Refund Form

We last updated the Allocation of Refund (Including Savings Bond Purchases) in January 2021, so this is the latest version of Form 8888, fully updated for tax year 2020. You can download or print current or past-year PDFs of Form 8888 directly from TaxFormFinder. You can print other Federal tax forms here. EFile your Federal tax return now. When a refund claimant (governmental or nonprofit entity) completes its Form E-585, Nonprofit and Governmental Entity Claim for Refund State and County Sales and Use Taxes, and Form E-536R. Form 8888 - Allocation of Refund Into Multiple Accounts If You Are E-Filing the Tax Return. From the Main Menu of the Tax Return (Form 1040) select: Mark the Return. However, N files his own return and claims a personal exemption deduction for himself for the taxable year. Under paragraph (a)(1)(ii)(B)(1) of this section, L and M are enrolling taxpayers, N is a claiming taxpayer, and all are subject to the allocation. When the end of year adjustments were done for the 19/20 year there should have been an asset account created for Tax refund due. If you or your Tax Accountant have not done the adjustments yet you should do so now and this is where the amount will be allocated. Julie Carter AIPA, BBus (Acctg).

But under federal law, each spouse on a joint return has a separate interest in the jointly reported income and separate interest in the overpayment (refund).

When the non-indebted (“injured”) spouse wants to request his or her part of the refund after a refund offset, file Form 8379, Injured Spouse Allocation, to ask the IRS to split up the overpayment. If the IRS approves the request, the IRS will refund the injured spouse’s share of the refund, and apply only the indebted spouse’s share to the past-due debt.

Note: The IRS uses the term “injured spouse” to mean a person whose share of a refund from a joint tax return was applied, or is expected to be applied, to a past-due debt of the other spouse. It doesn’t mean one of the spouses was physically injured. Injured spouse claims are sometimes confused with “innocent spouse” claims. Innocent spouse claims may be filed in some cases where there was something not properly reported on a joint return and the improper item is attributable to the other spouse.

The rules for requesting injured spouse relief depend on state law

If both spouses lived in a community property state at any time during the tax year, the injured spouse can file Form 8379 as long as the couple filed a joint return. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

In other states (common law states), the injured spouse can file Form 8379 if:

• The indebted spouse and the injured spouse filed a joint tax return.
• The joint return had a refund due, and the IRS applied (or will apply) some or all of the refund to a debt of the indebted spouse.
• The debt is legally enforceable and past-due:
  • Federal tax
  • State income tax
  • State unemployment compensation debt
  • Child support or spousal support
  • A federal nontax debt (for example, a federal student loan)
• The injured spouse is not legally obligated to pay the past-due amount (the indebted spouse is the only one who owes the debt).
• The injured spouse reported income such as wages, taxable interest, etc., on the joint return.
• The injured spouse has federal income tax withholding or made federal estimated tax payments, and/or the injured spouse claimed the Earned Income Credit (EIC) or other refundable credits on the joint return.

File Form 8379 as soon as possible

The injured spouse should file Form 8379 as soon as possible after learning that the IRS has applied or will apply all or part of his or her share of the refund to the indebted spouse’s past-due obligations.

File Form 8379 with an original or amended joint return, or by itself after the original or amended return was filed. Form 8379 must be filed separately for each year the injured spouse wants to claim injured spouse relief. Also, if the spouses later file an amended joint return (Form 1040X) to claim an additional refund, and the injured spouse doesn’t want his or her portion of the additional refund taken to satisfy a debt, the injured spouse must file Form 8379 with the amended return, even if he or she has already filed Form 8379 with the original joint return.

The injured spouse must file Form 8379 within three years of the due date of the original return (including extensions), or within two years of the date the tax was paid, whichever is later. In some circumstances, the IRS may extend the deadline for filing injured spouse claims relating to non-tax debt to six years (rather than the typical three years for tax debt).

Only the injured spouse should sign Form 8379 (the indebted spouse is not asked to sign).

How the IRS splits the refund

On Form 8379, the injured spouse should follow IRS guidance to allocate income, deductions, and credits between the spouses.

In community property states, the IRS will use each state’s rules to determine the amount that will be refundable to the injured spouse. The IRS allocates the EIC to each spouse based on each spouse’s earned income.

In common law states, the IRS will determine each spouse’s separate tax liability as if they filed separate returns. If an item doesn’t clearly belong to either spouse, it would be equally divided. If a deduction or credit wouldn’t be allowed if the taxpayers had filed separate returns, the IRS uses the deduction or credit shown on the joint return.

The IRS will then use a formula to begin the process of splitting the refund between the spouses:

Then, the IRS will allocate credits and income tax payments to the spouse who made the payments or qualifies for the credits. Any child tax credit, child and dependent care credit, and additional child tax credit is allocated to the spouse who was allocated the qualifying child’s exemption. The IRS will allocate the EIC based on each spouse’s income. Joint estimated tax payments can be allocated in any way if both spouses agree. If they don’t agree, the IRS will make the allocation based on their respective tax liabilities.

Scenario

Jack and Diane are married and file a joint return. They live in a non-community law state. They claim Diane’s two children from her previous relationship as qualifying children. Jack has wage income of $10,000, and Diane has wage income of $30,000. Jack is $4,000 behind on child support payments and already received a Notice of Offset for past-due child support.

Here is how the allocation looks on Diane’s Form 8379.

Form 8888 Allocation Of Refund 2016

Here are their joint and separate tax liabilities. Note that the separate liability is calculated only for purposes of the formula to determine each spouse’s share of the joint liability and potential refund.

• On a joint return, taxable income is $11,200 and tax is $1,123.
• On Diane’s separate return, taxable income would be $11,550 and tax would be $1,273.
• On Jack’s separate return, taxable income and tax would be $0.

To calculate each spouse’s share of the joint tax:

Diane: ($1,273 / $1,273 + $0) × $1,123 = $1,123

Jack: ($0 / $1,273 + $0) × $1,123 = $0

Their share of the refund is:

Diane: $2,000 (credit) + $936 (withholding) - $1,123 (tax liability) = $1,813

Jack: $364 (withholding) - $0 (tax liability) = $364

The IRS will also allocate any EIC between the spouses.

For Diane, requesting injured spouse relief could mean the difference between no refund and a refund of $1,813 plus the EIC.

How soon to expect the refund

While injured spouse procedures may allow the injured spouse to receive his or her share of a joint refund, the refund won't come quickly.

• For an electronically filed return and Form 8379, the refund processing time is about 11 weeks.
• For a mailed paper return and Form 8379, the refund processing time is generally about 14 weeks.
• For a Form 8379 filed by itself after the IRS processed a joint return, the refund processing time is about eight weeks.

In the next article in this series, we explain innocent spouse relief and how to request it.

Editor’s note: This article has been reviewed for changes following the passage of the 2017 Tax Cuts and Jobs Act. The information provided in this article was not affected by the 2017 TCJA.

Originally published Sept. 6, 2017.

Asset allocation is the next step in the investment process.Your asset allocation involves two steps:

1. Decide which index funds to include in yourportfolio.
2. Choose how much of your portfolio to place ineach one.

After you decide which investments to include in your portfolio,you need decide how you want to combine them. Your asset allocation has a much greater impact on your investment performancethan the individual investments you pick.

The asset allocation process is as much about managing risk as it is about investment performance. With this process you can deliberately manage your risk.

If you haven’t already read the article on index investing, do that first. In this article I’ll explain the asset allocation process as well as WHY it makes sense to follow an asset allocation strategy.

After you read both articles, you’ll understand why investingdoesn’t have to be an emotional guessing game.

What is AssetAllocation?

Your asset allocation is your investment mix. We tend to thinkof asset allocation in terms of percentage weights in a portfolio.

We can start with a simple example of a balance betweenstocks and bonds. Let’s say you have a $500,000 portfolio. If $350,000 is instocks and $150,000 is in bonds, that is 70% stock and 30% bonds.

This basic division between stocks and bonds is incrediblyimportant. At this level, you can already start to think about how you are balancingrisk and return.

The ability to systematicallybalance your risk and return is the main advantage of an asset allocationstrategy. You get to choose the combination of risk and return that is best suitedfor you.

Let’s see how this works by comparing two different assetallocations.

Return

Consider that 70/30 portfolio. From 1926 to 2015 a 70/30portfolio had an average annual return of 9.96%.

Now, reverse the portfolio weights. A portfolio made up of30% stock and 70% bonds had an average annual return of 7.31% over that sameperiod.

Clearly, the 70/30 portfolio outperformed the 30/70 portfolioover that period. You can see that in the charts below. Each chart shows thevalue of $1 invested in 1926.

What about Risk?

In order to get a higher return, you must be willing to accept more risk. In the context of portfolio management, this means greater fluctuation in your portfolio from year to year. If you accept some risk in your portfolio, you increase the chance that you will capture gains due to the market risk premium.

An easy way to see the difference in the two portfolios isto look at the maximum gain and loss of each during the period.

But what about the other years returns? The chart below plots the annual return of each portfolio. Notice the variability. The 70/30 portfolio fluctuates much more than the 30/70 portfolio.

Not only is the maximum gain and loss substantially different for each portfolio, but the annual fluctuations are substantially different as well.

You can also measure risk as the standard deviation of the returns. If you aren’t familiar with standard deviation, don’t worry. It isn’t really that complicated. Standard deviation is the averagedifference between the annual return, and the average annual return. It tells you how much the portfolio value fluctuated.

An example…

I know this isn’t statistics class, so I’ll forego the calculation and give you an example. You don’t need to remember the math below for this to be useful to you either. As long as you can grasp the concept behind it, you can use it. I’ll summarize after the example.

The 70/30 portfolio had an average annual return of 9.96% and a standard deviation of 14.05%. This means that the annual return, on average, fluctuated between -4.08% and 24.01%.

(9.96% – 14.05% = -4.08%) and (9.96% + 14.05% = 24.01% )

Compare that with the 30/70 portfolio’s average return of 7.31% and standard deviation of 7.08%. This portfolio’s return, on average, fluctuated between .23% and 14.39%.

(7.31% – 7.08% = .23%) and (7.31% + 7.08% = 14.39% )

Notice the difference in the ranges. When you round to the nearestwhole percentage, the 70/30 portfolio had a 28% range (-4% to 24%). The 30/70portfolio had a 14% range (0% to 14%).

This means that the 70/30 portfolio was twice as risky as the 30/70portfolio. You can also see that in the standard deviation itself: 14% vs 7%.

The essential concept is: To get a higher investment return, you have to be willing to accept more risk which means greater fluctuation in your portfolio.

Combining Return and Risk

Before we start looking at this in a little more detail, I want to point out that what we have just done is frame the investment decision. When you look at investing through the lens of asset allocation and index funds, you choose portfolios based on their combination of risk and return.

What About Other Asset Classes?

Now that we have the basic idea of asset allocation, lets talk about whichasset classes to include. The two assets mentioned above are:

1. Stocks
2. Bonds

I intentionally kept it basic. If I threw it all at you at once you would feel like you were drinking from a fire-hose.

However, there is more to asset allocation than stocks and bonds. You need to think about which stocks and bonds you want to include.

The stocks and bonds I used in the examples above are:

1. Large US Stocks
2. Intermediate-Term Government Bonds

There are many other asset classes you can, and should, include in yourportfolio. Once you think about your basic split between stocks and bonds, youcan further divide your portfolio between these other asset classes.

Examples of other asset classes are: Small Stocks, Large International Stocks, Emerging Market Stocks, Long-term corporate bonds, and T-bills.

Again, you can easily invest in each of these asset classes with a low-cost index fund.

Why Include Different AssetClasses?

When you include other asset classes in your portfolio, you get evenmore diversification. Index investing gives you diversification WITHIN an asset class. Choosing multipleasset classes give you diversification ACROSSasset classes.

You can also increase your average return. For example, from 1926-2015small US stocks had an average return of 16.47% and a standard deviation of32%.

Which Asset Allocation Do I Choose?

Before we decide which portfolio to choose, its important that youunderstand HOW to choose. First, let’slook at our options.

In the chart below I’ve plotted asset allocations from the same data as in the first example. From left to right you see the following allocations: 10/90, 20/80, 30/70, 40/60, 50/50, 60/40, 70/30, 80/20, and 90/10.

Notice the relationship between risk – standard deviation, and return.As the average return increases, so does the risk. Your asset allocation choice is based on this tradeoff.

So, which one do you choose? You choose the portfolio that gives you the ideal balance between risk and return. Could I be more vague?

I’ll provide more guidance in a moment.

Modern Portfolio Theory

This analysis was developed by Harry Markowitz in his 1952 paper Portfolio Selection. It was the result of his doctoral dissertation that he completed under Milton Friedman. In his research, Markowitz describes what he calls the “efficient frontier”.

The efficient frontier represents all the possible efficientasset allocation options that are available. An efficient portfolio is one that:

1. Provides the highest expected return for a given level of risk.
2. Minimizes risk for a given level of return.

ANY portfolio that lies on the efficient frontier can be a “correct” choice for you.

The chart above is essentially the efficient frontier of our two-asset-class portfolio. Although it was developed in 1952, his process is known as Modern Portfolio Theory.

Choosing the Asset Allocation For Your Retirement

Determining which portfolio is best for you is much more about YOU than it is the portfolio. You may also find that you want to change your asset allocation over time*. Don’t think of this as a one-time decision but as an evaluative process.

Some of the main factors you need to consider are:

Department Of Allocation Refund

Risk Tolerance

What is your appetite for risk? When you see your portfolio value fall 20% in a year do you panic and sell? If so, you should choose a portfolio with less risk. There are a lot of factors that affect your risk tolerance.

To some extent, educating yourself on the investment process can affect it.

Time Horizon

How long will you be invested before you need to take withdrawals?The longer your time horizon, the more risk you can take in your portfolio. Overa longer period, the potential for a higher average return should make up for thefluctuations in your portfolio. Remember the example above.

Return Objectives

What rate of return do you need or want? If you want ahigher return, you’ll need to choose a portfolio further to the right on theefficient frontier. Remember, this comes with increased risk.

Allocation Of Refund Form

With just these few factors, you can see that the decision requiresbalancing competing aims.

*Be careful not to change your allocation based on the market. Notice that at no time have I mentioned choosing an allocation based on what the market is expected to do. Your asset allocation is based on factors specific to YOU. One of the main benefits of an asset allocation strategy is it takes a lot of the emotion and guesswork out of investing.

What About Investing for RetirementIncome?

Index fund allocations provide a good means of investing. This is especiallytrue before you retire, and your main concern is building up your nest egg.

Once you start to transition into retirement index fund allocations are still good, but you do need to think specifically about how your retirement withdrawal strategy affects your investment strategy.

The risks you face before retirement are not the same as the risks you face in retirement. Before retirement you are contributing to a portfolio. During retirement, you take withdrawals from the portfolio. Even this simple reversal changes your risk.

Depending on your withdrawal strategy you may need to adjust your portfolio. For example, if you use an income floor strategy.

However, index fund allocations can still provide the basis of yourportfolio.

Which Asset Allocation Should I Choose?

Need help deciding on the retirement asset allocation that works best for you? Contact me through this form here, email me at[email protected] or call 903-471-0624 and we will get started.