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Taxes

Tax Reform Bill Takes Aim at Adoption and Alimony

Tax Reform Bill Takes Aim at Adoption and Alimony

By Inna G. Materese | Esquire

The recently-released House Tax Reform Bill has seemingly sent analysts and experts in all kinds of field scrambling to determine how the proposed changes may impact the rest of us. 

Family law practitioners, litigants, and policy-makers are no exception. Indeed, the Bill would eliminate certain deductions and exemptions many of our clients rely upon. Some family law veterans are concerned about the Bill's plan to eliminate the adoption tax credit. Others debate the choice to eliminate the alimony deduction used by many litigants and attorneys alike to negotiate as mutually acceptable deal in their divorce. 

As the House and Senate continue to debate the merits of the new Bill, it is important to consider how these changes may impact your case, if your matter is still pending. Be sure to speak with your attorney regarding the possible tax implications of your family law matter.

The IRS is Paying Close(r) Attention to Your Support Order

The IRS is Paying Close(r) Attention to Your Support Order

By Elizabeth J. Billies | Esquire

According to a recent article by Insight Financial Strategists, those claiming payment or receipt of alimony/spousal  support are at a higher risk for audit by the IRS. The agency is increasing it is auditing filters and developing additional strategies to catch reporting discrepancies between alimony payments that are claimed vs. alimony payments that are received. 

If you are claiming a deduction for support payments or declaring receipt of support income, it is crucial that accurate numbers are reported.  This may require speaking with your ex-spouse to make sure the amount paid vs. received match and that you both understand what is considered alimony/spousal support and what is not.  Although working with your ex may not be something you look forward to, it may be more favorable then speaking to an IRS auditor.  To read the Insight Financial Strategists article, click here.

Divorce and Taxes

Divorce and Taxes

By Inna G. Materese | Esquire

It’s that time of year again.

The time of year you may be asking yourself how to file your taxes if you’re going through or contemplating a family law matter. Going through a divorce or other family law matter can be a trying process all its own so it’s no wonder that most of us often forget that our legal case may have tax implications. So, what do you need to consider?

  1. Choose the right filing status. While you may consider your marital relationship to be over, the IRS will continue to treat you as a married person so long as you are still legally married on December 31st.  In most circumstances, you have only two filing options available to you while going through the divorce process: (1) Married Filing Jointly and (2) Married Filing Separately. Speak with your attorney about the advantages and disadvantages of each status in your case. 
  2. Talk about who claims the Children (and do it early). If you intend to file a separate return, consider who will claim the dependent exemption for the children. Joint custody arrangements may lead to confusion regarding which parent is entitled to claim the exemption and whether the exemption may be used as a bargaining chip in the litigation. Discuss these options with your attorney and your accountant.
  3. Don’t call it Alimony (unless it is). Beware of support payments “alimony/APL” on your tax return. Any payments an individual makes or receives before the divorce is final are not considered alimony/APL by the IRS unless they are made pursuant to a court order and specified to be alimony/APL. Confirm with your accountant and attorney whether payments you make or receive qualify.
  4. Consult with an attorney AND an accountant. A family law attorney can help you learn about the potential tax consequences of your legal action and can provide a strategic approach to get you the most tax-effective result in your case. However, while your family law attorney is certainly familiar with tax considerations involved in your matter, he or she is likely not an expert on the calculations, nuances, and in-depth institutional knowledge necessary to offer you tax advice. Speaking with an attorney and a tax professional is always the best practice.