Whether you’re seeking intaxification, (the nice feeling when you receive a tax refund, until you realize it was your own money), or are just trying to finish your return, here are some tips to get you through the extended 2021 tax filing season. While Hoffman Divorce Strategies does not prepare tax returns or give tax advice here are some helpful tips.
Get Professional Help
If preparing your own tax return feels like you’re trying to pass a kidney stone, get some professional help. Removing one more stressful item from your to-do list may well be worth the expense of hiring a tax preparer. Also, your return will probably be reviewed by the court, so timely and accurate preparation of your tax return will help get you through the divorce process.
Share Tax Information with your Spouse
It’s important that you share information with your Spouse so that your returns are properly and timely filed, especially if you are not filing a joint return. If the Court has ordered you to share information and you fail to do so, the Court may find you in contempt and make you pay the other spouse’s costs and a fine. Some other examples of information that needs to be shared:
- If you own rental property together, the income and expense information is needed for each of you to report the rental property in your tax return. You will also need to share the depreciation information.
- If you sell property you will need to share the basis of the property being sold. Basis is the original cost, plus capital improvements, less casualty losses, depreciation, and amortization.
- If you sell jointly owned investments the 1099-B and investment basis will need to be shared.
- If you received a stimulus check you will need to share that information.
Filing Status
If you were divorced before December 31st of the year of the tax return you must file your return with the status of a Single Taxpayer or Head of Household, unless of course you remarried by December 31st! If you were not divorced, then you must file as Married Filing Jointly or Married Filing Separately. If you file with the status Married Filing Separately and live in Louisiana, you and your spouse’s community income is considered earned one half by each of you. Your unique situation will determine the filing status you choose, and we strongly recommend that you hire a tax professional to assist you with this decision.
Form 1099-R for Retirement Accounts
If you received a share of your spouse’s Qualified Retirement Plan or IRA account by a Qualified Domestic Relations Order (QDRO) or Court Order, make sure that the Form 1099-P only shows the amount you withdrew as taxable, and that it properly reflects any taxes that were withheld from the withdrawal. If you were under 59 ½ and received the award by a QDRO, make sure that the form shows the correct distribution code in Box 7, (code 2). For 2020, if you made a withdrawal from your retirement plan of up to $100,000 under the Section 2202 of the CARES Act, the withdrawal should not be subject to the ten percent early withdrawal penalty and may be recognized as income over three years. If there is anything wrong with the Form 1099-R call the issuing financial institution.
Childcare Credit
The childcare credit does not automatically belong to the parent who claims the child as a dependent. It is given to the parent who pays the costs and has the child more than 50 percent of the time.
Spousal Support (Alimony)
Under current tax law, the person paying support may not deduct that amount from their taxes and the person receiving support does not report it as income for alimony agreements entered into after December 31, 2018. However, if the support is paid under an agreement entered into before January 1, 2019, or amended after that date, the person paying support may deduct that amount from their income and the person receiving support does report it as income.
While Hoffman Divorce Strategies does not prepare tax returns or give tax advice, we work with divorcing couples, their counsel and tax preparers to assist you in navigating tax issues unique to a divorcing couple. Contact us to see how we can help.