Wednesday, January 7, 2009

It's Tax Time!

Once the calendar flips over to January, people inevitably start thinking about filing their income taxes. Some look forward to getting a nice refund. Others start worrying about how they will pay whatever taxes they owe. Still others don't have any idea where they stand. When couples go through divorce, their tax lives often become much more complex. I'm not going to try to give tax advice here, but there are some things for you to look for and think about as you start planning your taxes.

Let me start with my conclusion: You need to see a CPA to make sure the taxes are done correctly and that you don't end up paying more than your share. Here are some of the issues to consider:

1. Especially this year, in the midst of the economic crisis, there are many changes in the tax laws. It takes a professional to keep up with the changes.Tax breaks come and go. It would take a lot of time and study for an amateur to correctly know all the changes.

2. While it is tempting to just rely on tax software and do your own taxes, especially if you have done it in the past, you may not be up to the task this year. If you are in the middle of a divorce, there are many decisions that have to be made on the taxes and it would pay you to get help. President Obama's new Treasury Secretary, who was a high official with the Federal Reserve Bank in New York, used a software program, made a major mistake with his return and almost didn't get confirmed as Secretary. He could have avoided that problem if he had used a competent professional.

3. Make sure you and your spouse both don't claim the same deductions, exemptions and credits. That frequently happens during divorces. That requires communication and a professional to help find the best course of action.

4. Be careful if any of the following happened, or you think may have happened, in the last year:

  • a house was sold,
  • debt was forgiven,
  • someone was unemployed,
  • funds were withdrawn from a retirement plan, or
  • a family business went under.

You should have a CPA help you analyze the situation. There are many other potential traps in the tax laws.

5. If you are separated, but not divorced, you should figure out whether it is to your advantage to file a joint or separate return. A CPA is best able to look at all the factors and recommend a course of action.

Hopefully, these comments will persuade you to seek guidance from a CPA for the tax issues you run into when you file a tax return during a divorce.

1 comment:

Joe Mastriano, CPA said...

I'm always glad to see when an attorney recommends that a CPA handle the accounting part of a case. I've seen too many attorneys try to take on the roles of others. I refer attorneys to my clients as needed.
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