Many issues need to be addressed whenever two people decide to get divorced. One major issue is income taxes.
Some of the more common questions are:
- Do we file jointly or separately?
- Do we have to allocate the income, and if so, how?
- Do we have to allocate the expenses, and if so, how?
- My spouse is self-employed. Who pays the self-employment taxes?
- Who gets credit for the estimated tax payments?
- We have one child. Who gets the deduction?
- We have more than one child. Can we split the deduction?
- I paid a lot of attorney and accounting fees. Can I deduct them?
The following is a list of some of the issues that a Certified Divorce Financial Analyst and tax professional can bring to the table that attorneys and the participants in a divorce often overlook. This list is not all-inclusive:
- Discounting Epstein credits for the tax benefits
- Weighing the risks of filing a joint return
- Considering the child support trap of IRC § 71
- Not fighting over the dependency exemption when the client can’t use it
- Considering if both can be head of household
- Not assuming that the capital-gains tax is based on the client’s share of the proceeds
- Evaluating whether attorney’s fees can be deductible or capitalized
- Not considering the tax traps in dividing stock options.
There can be significant tax implications when the parties divorce, you owe it to yourself to consult a financial professional (forensic accountant, CPA, and/or CDFA) to make sure you and your attorney understand all of the financial and tax implications of your divorce.
Cathleen Collinsworth is a lawyer at Forensic Accounting Offices in Orange & Riverside County, Irvine & Menifee, California.
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