TAXES NOT FILED

Many people become non-filers each year for a number of reasons. They lose the paperwork, they couldn’t pay, or they forgot about it. Sometimes illness, family crisis or depression plays a role. The list goes on and on.  

 If you are a non-filer, don’t procrastinate any longer. You may be hoping the IRS has forgotten about you, but that rarely happens. In truth, the longer you wait, the more costly it will be if you owe money. And if you are due a refund, the statute of limitations on that refund expires three years from the date the return should have been filed. Don’t risk losing your money.

 It’s not uncommon to feel overwhelmed when you haven’t filed for a while, but don’t despair. Lost paperwork can be reconstructed. If you owe, it’s better to file and negotiate an installment agreement because this will stop the late filing penalties although interest will continue until the tax bill is paid. Sometimes, penalties can be abated if the circumstances are serious, such as family crisis, illness oor other catastrophic situations.

 Contact a tax professional to help you get the monkey off your back. An enrolled agent (EA) is licensed by the Treasury Department to represent clients who have problems with tax filing and with the IRS. EAs must pass a rigorous three-part exam to act on a client’s behalf and can help to get taxes filed, negotiate an installment agreement for those who can’t pay in full or, possibly, negotiate an offer in compromise to reduce taxes, penalties and interest. Don’t wait for the IRS to come looking for you; it’s far better to voluntarily come forward.

 Every U.S. citizen and resident is required to pay his or her fair share of taxes. No more, no less. The IRS has a matching program whereby all 1099s, W-2s, etc., are entered in their computers. They match this information with the tax returns that have been filed to ensure that all income has been reported and that everyone who is legally required to do so has filed a return. So, if you haven’t filed for whatever reason, get moving before the IRS comes looking for you!

DIVORCE AND TAXES PART 2

WHO CLAIMS DEPENDENCY EXEMPTIONS

The dependency exemption for qualifying children of divorced or separated parents will usually go to the parent who has primary custody of the children for the calendar year. The custodial parent is determined by the number of nights that the children lived with the parent. When the children spend an equal amount of time with each parent, the parent with the higher adjusted gross income is allowed to claim the dependency.

A custodial parent may give up his or her claim to the dependency exemption to the noncustodial parent, provided four requirements are met.

First, the qualifying child must have received over one half of his support during the calendar year from his parents, who are either divorced, legally separated, or have lived apart during the last six months of the calendar year whether or not they were actually married.

Second, the qualifying child must have been in custody of one or both parents for more than one-half of the calendar year.

The third requirement is that the custodial parent must sign an unconditional written declaration on IRS form 8332 that he or she will not claim the dependent for any taxable year. A court order or decree, or a separation agreement will not be treated as a release. The release must state the name of the noncustodial parent to whom the exemption is released, and the years in which the release is effective.

The fourth, and perhaps most important, requirement is that the noncustodial parent must attach that written declaration to his or her tax return for each year in which the children are claimed as a dependent.

If all of the above conditions are met, the non custodial parent may claim the dependency exemption, the child tax credit, and any education credits attributable to educational expenses paid for the children by the non custodial parent. The custodial parent, however, may still file as head of household and claim the dependent care credit and earned income credit.

www.haroldjblotchertaxes.com

HAROLDJBLOTCHERTAXES.COM

Harold J Blotcher, EA

DIVORCE AND TAXES Support Payments Distinguishing Alimony from Child Support Divorce is never easy. No matter the reason there are almost always emotional and financial implications. Included in those are several tax considerations that must be addressed. My next couple of articles will outline some of the tax situations that arise as the result of divorce. This article will provide an overview of alimony and support payments. In the context of a divorce or separation, one spouse may be required to make support payments to the other. The tax consequences of these payments depend on whether the support is intended for the recipient spouse or for the children who are in the custody of the recipient spouse. State law requires that parents provide support for their children, and money expended on such support is generally not tax deductible. Consequently, it does not matter whether the support is being paid to various suppliers of goods and services when a child resides with the taxpayer, or if the payment is made to the custodial parent for this purpose. In either case, payments for the support of a child do not generate a tax deduction. Likewise, such amounts received by the custodial parent do not constitute taxable income to the recipient. Payments for the support of an ex-spouse, however, are a different matter. These payments are considered alimony and are deductible by the payer spouse and includible in the income of the recipient spouse. It is crucial, therefore, that alimony payments be properly identified. There five requirements for a payment to be considered alimony. First, the payment must be in cash, not in services, or property, or a debt instrument. Second, the payment must be made to, or on behalf of a spouse, pursuant a divorce or separation instrument. A "divorce or separation instrument" is either: (1) a decree of divorce, a decree of separate maintenance or a written instrument incident to a decree of divorce or separate maintenance; (2) a written separation agreement; or (3) a decree of spousal maintenance. A "decree" is basically a court judgment. A written instrument is "incident to a decree" if it is related to it. Note also that the payments must be made to the spouse or a designated third party if the payment is made on behalf of the spouse. Such designation must be provided in the divorce or separation instrument. For example, the divorce or separation instrument may provide that the payer spouse make payments directly to the creditors of the recipient spouse. The third requirement of alimony is that the divorce or separation instrument cannot specify that the payments are not alimony.  If the instrument specifies that the payments are not alimony, the recipient must attach a copy of the instrument to his or her tax return for each year in which the designation applies,  otherwise the recipient will be taxed on the income. The fourth requirement is that the spouses must not share a household when the payments are made. Payments made while the couple lives together in the same household will not qualify as alimony. However, payments made while the one spouse is preparing to depart and in fact departs less than one month after the date of payment may still be considered alimony. The fifth and final requirement of alimony is that the divorce or separation instrument must provide for the termination of alimony payments upon the death of the recipient spouse. For example, if the divorce instrument requires A to pay B $10,000 in cash annually for ten years, but does not specify that the payments will terminate upon B's death, none of the payments will be treated as alimony for federal tax purposes.  Furthermore, just because payments actually do cease before the recipient's death does not mean this criteria is met. As always feel free to contact me with any comments or question.