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Posts Tagged ‘divorce tax issues’

Think Your Husband Is Fudging Numbers – Don’t Sign That Tax Return

posted by admin 10:00 AM
Tuesday, March 22, 2011

Most people find it hard to believe that Bernie Madoff’s wife, Ruth, had no knowledge of her husband’s Ponzi scheme.  After all, she was a major beneficiary of his crimes. Whether or not she knew, most people think she was somehow involved and, at the very least, turned a blind-eye to his fraud.

Even though your husband may not be running multi-million (or billion) dollar Ponzi schemes, you could still be in for big trouble if he is fudging numbers, not reporting income, or claiming fictitious deductions on your joint tax returns.  For example, if your husband owns a business or professional practice and the profit or loss from that business is declared on your personal tax returns as is usually the case with a sole proprietorship, partnership, limited partnership, LLC, or “S” Corporation and you are not privy to the finances of his business, you could be setting yourself up for a disaster. No matter how innocent or ignorant you may be of this type of activity, if you file jointly, you are equally responsible in the eyes of the I.R.S. and your state’s taxing authority. There is a very limited and hard-to-get I.R.S. and state exception called “Innocent Spouse Relief” but it is accepted in very few cases. See this New York Times article for more details: http://www.nytimes.com/2005/02/13/business/yourtaxes/13spou.html.

However, there is a way for you to avoid falling into this dangerous trap.  You could choose to file a separate tax return.

According to the I.R.S., you can either file jointly or separately if you are married. If you choose to file separately, one spouse cannot be held responsible for the unpaid taxes of the other.  However, it is important to note that even if you choose to file separately this year, you will still be responsible for the prior years that you filed together.

If you and your husband decide to file separately, you must both choose to either take the standard deductions or to itemize deductions.  It is not possible for just one of you to itemize deductions.  Additionally, filing separately can result in a bigger tax bill since you may not be able to take full advantage of certain benefits and deductions.  However, the bigger tax bill would be nothing compared to your legal and accounting expenses if the I.R.S. comes after you.

When going through a divorce, there are many complex issues to sort through when deciding whether you should file separately or jointly.  Remember, the I.R.S. does not care if you and your husband are divorced and, if warranted, they can still come after you for joint returns that were filed years before your divorce. If you suspect that your husband has engaged in any financial shenanigans, you should definitely speak with one of our Divorce Financial Strategists™ to determine what steps you should take to protect yourself.  It could save you years of stress and lots of money!

 

All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.

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Tax Dilemma for Divorcees – Who Gets to Claim Head of Household?

posted by admin 10:00 AM
Tuesday, February 22, 2011

There are many issues that must be resolved during divorce that will impact how you file your taxes each year. In addition to several potential tax credits, it is important to understand who will be eligible to file as “Head of Household.” This is very important because filing as Head of Household will typically result in a lower tax bill than filing as Single or, if you are not yet divorced, Married Filing Separately.

Generally, the Head of Household filing status is determined by your custody arrangement. The parent who has the children more than one-half of the year can claim the Head of Household filing status. The only way that both parents can claim Head of Household is if they have more than one child and each parent has at least one different child living with them for more than one-half of the year.

People sometimes mistakenly believe that claiming a child as a dependent entitles them to file as Head of Household. This is not necessarily true. To qualify as Head of Household you must meet the following requirements:

• You must maintain a household for your child (even if you do not claim them as a dependent)

• You must be unmarried at the end of the year or living apart from your spouse for more than six months

• The household must be your home and generally must also be the main home of the qualifying dependent (i.e. they live there more than half the year)

• You must provide more than half the cost of maintaining the household

• You must be a U.S. citizen or resident alien for the entire tax year

You do not need to claim a dependent to file as Head of Household. This means that even if you allow your ex-spouse to claim your child as a dependent, you can still file as Head of Household.

If you can claim Head of Household you may also qualify for the Dependent Care Credit, the Earned Income Tax Credit (this is for lower income people), as well as other rebates that may be available for that tax year.
In some cases, if you are separated, but not divorced, and are filing separate tax returns, you may be able to file as Head of Household. You will need to meet the criteria mentioned above to do this.

Deciding the filing status and who will claim dependents can have a tremendous impact on your tax situation. You may be able to save thousands of dollars in taxes. So, it is important to work with a divorce financial specialist (such as one of our Divorce Financial Strategists™) both during the divorce process and after. You need to fully understand the impact that your filing status and tax credits may have on your bottom line before you agree to a divorce settlement.

All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.

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