It’s tax filing season and now is the time to gather your important tax documents. Of course, tax filers should be aware of the basics including gathering your employment W2s and 1099s. But, what about the not so basic information that is often crucial to a complete filing? If you have investments you should receive from the brokerage firm a 1099 which will report dividends, interest, or capital gains. If you are an owner of a company, you may also receive a K-1 which will report any distributions you received. Taxes may also result from one party removing monies from their retirement account. Both spouses should exchange in advance of filing all necessary documents to avoid delay and any surprise taxes due.
Many clients ask if they may take a tax deduction for their child. Even if two spouses have a written agreement stating which parent may take the child deductions or credits, the IRS is not bound by the parties’ agreement. In order for a parent to properly claim the child on their tax return they must have an executed IRS 8332 form which states which parent is entitled to claim the child. Otherwise, the IRS will simply default to the parent who has custody the majority of the year. Parties who are not yet divorced should also consider how they might file their returns. Deciding whether to file a joint income tax return or a separate return may depend on many factors but more importantly a joint income tax return means that both parties are liable for any tax payments due including penalties and interest for late filings. Additionally, if requesting an extension be mindful tax payments are still due on April 15, along with any interest for late filings. Refunds should also be agreed upon and in most cases the refund should be proportionately divided between spouses based on incomes of the parties.
There are many issues to consider when a spouse is filing taxes during a divorce. Be sure to consult with both your attorney and an accountant so that you may receive the greatest benefit as a result of filing taxes.
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