Miscellaneous Tax Stuff

Now that tax season’s over, it’s time to get back to other parts of life that got pushed to the side from January to April. One of those is writing articles for this blog. One thing I wrote about a number of months ago was ‘miscellaneous tax stuff’, and I think it’s time to do that again, so here goes…

Gift Taxes-did you know that if you make a gift of money or property to somebody else, you may need to file a gift tax return? You didn’t know that? Well, they say you learn something new every day, so you’re good to go! Check out a brief IRS YouTube video for more information, at http://www.youtube.com/watch?v=bPnR3U8Wk04

W-2 Reporting of Employer-Sponsored Health Coverage-beginning in 2012, employers must report the cost of group health coverage on employees’ W-2s (sent to employees by 1/31/13). IRS has more information at http://www.irs.gov/newsroom/article/0%2c%2cid=257101%2c00.html

Start Planning Now for Next Year’s Tax Return-it’s never too soon for tax planning. Here are some things you can think of now
-did you have a large overpayment or balance due on your 2011 tax return? You should think about adjusting your withholdings, to have less/more tax withheld
-organize your recordkeeping, to make it easier at tax time. I think that part of the stress people feel when it comes to taxes has to do with searching for information they need. If you have a set place to put all tax related papers, you won’t have to remember where you put everything. And keep your prior year returns nearby, too.
-if you’re close to itemizing deductions, think about “bundling” your deductions into one year. This could include making an early mortgage payment or paying property tax before its due date.
-start thinking about (JayTheCPA) finding a tax professional (JayTheCPA) sooner, rather than later. Did you like my subliminal advertising?!

Name Changes After Marriage or Divorce-if your surname changed due to marriage or divorce, check out this IRS YouTube video for more information http://www.youtube.com/watch?v=LibPOtwWAGc

Estimated Taxes-this is something that new business owners forget about, until it’s tax time, and they find out that not only do they owe a load of tax, but a penalty too, for not making quarterly estimated tax payments. Check out this IRS YouTube video http://www.youtube.com/watch?v=DM5XxKCATv0

I hope you found at least one piece of ‘stuff’ helpful to you. Please pass along this information to somebody else who may benefit, and let me know if you have any interesting tax stuff to share!

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Divorce and Taxes-Part 2

When last we met, I left you hanging with a couple of divorce related tax thoughts to keep in mind. Let’s wrap up this discussion with a few more things to think about while planning (or waiting for) the next spiteful spousal action(!)

Transfers of property-“Generally”, property transferred from one spouse to another can be made without tax consequences to either party, as long as the transfers are made “incident to the divorce”. As with anything that IRS uses the word “generally” for, there are exceptions and rules to follow to make sure that the transfers don’t create taxable income for one of the spouses.

Marital home-Similar to the discussion above, if the transfer of one spouse’s interest in the marital home is incident to the divorce, there’s no gain recognized on the transfer. Additional things to consider are who gets the deduction for mortgage interest and real estate tax, and whether there’s excludable gain on the sale of the ‘principal residence’ (and who gets it).

Filing status-I covered this subject briefly last week, but I wanted to add one other ‘curveball’ to this discussion. Under certain circumstances, an individual may be able to file a return as “head of household”, which will result in a lower tax bill than “married filing separately”. There are a number of requirements that must be met, in order to do this.

Alimony and child support-Alimony is deductible to the payer and taxable income to the recipient, while child support is nondeductible and nontaxable.

Attorney fees-As with many other issues, attorney fees generally are not deductible. Fees paid for the actual divorce/separation/custody/etc issues aren’t deductible, but fees paid for tax planning and tax advice are. If that’s the case, be sure the invoice splits out the portion of the fees paid for tax related services.

As you can probably tell, since it’s taken two articles to barely scratch the surface of the topic “divorce and taxes”, this is a very complex and treacherous area to deal with. To repeat what I said at the beginning of part 1, I strongly recommend that you engage the services of an attorney and a CPA to help you through both the legal and tax aspects of the divorce.

I hope this two-part article has been of help to you, or people you know who are going through one of the most stressful of life events. Please feel free to pass a link to this article to someone who may benefit from it, and leave any comments you may have. If you have any subjects that you’d like to see addressed in future articles, please let me know.

Divorce and Taxes-Part 1

Did the title of this article grab your attention? Divorce and taxes are two subjects that can be pretty painful and gut wrenching on their own, but put the two together, and one may well want to run away and bury their head in the sand. To quote John Lennon, “living is easy with eyes closed”, but that won’t help get either a divorce or taxes behind you. Two words come to my mind in this situation; attorney and CPA.

I’m not an attorney, but being married to an attorney who spent a number of years practicing matrimonial law, I can tell you that you don’t want to go through the divorce process alone, and you need representation to make sure you’re not signing your rights away. Enough said on that; let’s talk about taxes.

When a couple is divorcing, there are all sorts of tax implications to think about, and this is why it’s imperative to engage a CPA for help. This is for your benefit, not for my job security! Similar to the paragraph above, you don’t want to make any tax mistakes, or give anything away, because you weren’t properly advised. Let’s look briefly at some tax things to think about, when going through the divorce process.

Filing Status-I’ve told clients for years that 99.9% of the time, ‘married filing jointly’ will produce a lower tax than the combined tax from two ‘married filing separately’ returns. A divorcing couple may not want to file jointly, since they’re probably already at the point of separating their finances, and don’t want the other to see what’s on a tax return. If one spouse is opposed to filing jointly, the other may have no choice but file separately. Another twist on this is the fact that a joint return means that both spouses are jointly and severally liable for any tax. What this means is that if a couple files jointly, divorces, and then a year later it’s determined that there’s more tax due, IRS can look to either spouse for payment of that tax. This is a major reason why many divorcing couples choose to file separately, i.e. to not be potentially responsible for the other’s tax.

Dependents/exemptions-How many people know divorced couples who have kids (I have two hands raised). Besides legal arguments over custody and child support, there’s the question of which spouse gets to claim the kids as dependents on their tax return. This is a question/issue not just for the year of divorce, but also for subsequent years. There are all sorts of rules and tests to determine who claims the dependents. This article would be way too long if I got into a detailed explanation, but let’s just say that generally the custodial parent would be entitled to claim the dependent/exemption, but there’s a lot behind the word “generally”.

Next week I’ll wrap up this discussion with a few other tax issues to keep in mind when going through a divorce. If you know somebody who’s going through a divorce (one of the most stressful life events), please pass this article along, and if you’ve heard of any divorce/tax “war stories”, please share them.