#9: Tax Preparation Timing During and After Divorce
This is the ninth installment of “Divorce. What You Need to Think About from a Financial Perspective”, which can be downloaded for FREE from makara-assoc.com.
When preparing for tax filing during or after a divorce, the two dates I consider to be the most important are the date divorce petition was filed and December 31 of each year.
Pending divorces can often go on for more than one filing year.
Filing Date
In most states the filing date, by either party, is when you become financially separated. However, this is not true for every asset. Retirement plans are usually marked by the date of distribution and appreciating or depreciation assets (i.e. principle residence). This can be valued once an agreement is reached.
December 31st
December 31st is the last day of the tax year. It is the determining factor in a couple’s filing status. If you are legally married on December 31, you have two options when it comes to filing tax returns.
You may choose to file “jointly” or “married filing separate”. In very few situations does “married filing separate” produce a lower tax liability when compared to filing jointly. Depending on the nature of the relationship, income differences, and deductibility of expenses, this can become a major issue. In fact, this issue is often the most contested area outside of a final agreement.
After a divorce is finalized, jointly filed returns for the past 3 years are still open to IRS audit. Innocent spouse relief could be something to consider if a tax liability arises due to audit findings.
Generally, the IRS can collect tax from either spouse. But, if the understatement was due to one spouse’s income, and the other spouse had no knowledge of the income, innocent spouse relief may be available. You should use Form 8857 to request this type of relief.
Only professional fees related to tax issues and the receipt or payment of alimony are tax deductible by the party paying for the expense. They are deducted as miscellaneous itemized deductions subject to 2% adjusted gross income limitation. Attorney fees to process the divorce are not tax deductible.
Many issues can arise when filing your taxes during a divorce. It is advised that you seek the help of a Certified Public Accountant that can assist you in preparing and filing your taxes, so that it is in the best interest of both parties.
To read more about divorce planning click the eBook on the right to download it FREE from our website.
If you have further questions about preparing your taxes, please feel free to contact me online or call (239) 384-9688 in Naples and (239) 768-5008 in Fort Myers.
-Mark
This information is based on facts, assumptions and representations as stated and authorities that are subject to change. We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.
LEGAL NOTICE AND DISCLAIMER: The information within this blog is for informational and educational purposes only and is not tax advice and should not be used as such. The facts of each individual situation can have significantly different outcomes when applying tax law. The hiring of a CPA is an important decision not to be based solely on advertisements.
