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Family law attorneys have a very difficult job and they have to deal with many things including divorce tax issues. Typically it starts with having one issues, and that is getting the divorce that you are after, but it can unravel into many other issues including those that involve taxes.

The first thing you will face after a divorce is called taxibility of assets distributed incident to divorce. When this happens in a divorce it is very hard to understand, but your lawyer can help to explain why you do not have to worry about this issue if everything happens with one year of being divorced.

There are many other issues that you are going to face including those that have to do with alimony that will be paid to you or that you will pay. This also goes along with child support and it all has to be figured into your taxes. You will need some legal advice to make sure you do everything you need to when you file your taxes.

You could run into other issues if you have to sell the home between the two of you or what the best filing status will be for you and your ex. These should be concerns for you and you should get legal advice when you have questions about how to file taxes properly after a divorce.

Another thing to figure out is how your children are going to affect your taxes now that you will be divorced this year. There are many things you have to know about filing taxes after a divorce when you have children that are involved and it is different depending on which side of the equation you are on.

Just remember that whenever you are worried about divorce tax issues it is smart to get the advice of a professional that has experience with these issues. This could be the same attorney that handled your divorce or it could be one that is completely different.

By: Major Sherry

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I own and run an advertising company. Recently I took some clients out on one of those gambling boats. I came away losing money. Can I deduct the gambling loss as a business deduction?

No you couldn’t. Even though the money was “spent” for a business event gambling losses count as neither income or deductions on your taxes. In fact you wouldn’t even bother reporting the gambling loss on your taxes. If you had won however you would have to report the winnings as income. But your gambling winnings would need to be reported on your personal tax return rather than your 1099 business tax return.

My business has seen a lot of growth over the last year. I’ve had to move my office, and hire a host of workers to get our new location up and running. My question is do I code these guys as 1099 contractors, or 941 employees?

Well, you need to ask yourself: Were these guys there everyday and worked only for you. Or did they come in, do their job, and you cut them a check for their services. If it’s the latter then you would claim them as 1099 contractors since they only came in to do a specific task.

I’m a realtor who’s gotten into serious debt with the IRS. I’m trying to sell some properties to pay them off, but the market is so bad right now I can’t give them away. The IRS is getting really pushy about getting their money. Since I have no way of paying them off, is there anyway I can get them to settle the debt for pennies on the dollar?

You’re asking about an Offer in Compromise. Offers are very complicated and lengthy processes to get your total debt to the IRS reduced. However since you still own properties the IRS considers you to have sufficient assets to pay off the debt and therefore would not approve you for an Offer in Compromise.

I had to go the Emergency Room a few months ago, and even after insurance paid there was still several thousand dollars left on the bill. I want to get this taken care of and am thinking about taking the money out of my 401k. I know I have to pay a 10% early withdrawal penalty, but is there anything I need to do about taxes on the money I take out?

Absolutely, your 401k is considered “unearned income” meaning that regular federal taxes aren’t taken out like they are on your paycheck. In fact you don’t have to report any income gained from a 401k as long as you don’t touch the money. But once you withdraw it the IRS wants their cut. You should expect to give the IRS about 30% of whatever you take out. So if your medical bill is $10,000, you would want to take out close to $17,000 to cover the withdrawal penalty and the IRS tax.

On the positive side, you can use your medical expenses as deductions on your tax returns.

The IRS has sent me a letter stating they’re going to levy my bank account in 30 days. Is there anything I can do to stop this?

There is, but you have to act quickly. You will need to make a request for a Collection Due Process Hearing with the IRS. This gives you the 30 days to work out an alternate payment plan with the IRS. If you don’t work anything out by then, then the IRS puts a lien on your bank account essentially freezing it for 21 days. You still have those 21 days as a last resort to work anything out with the IRS. If you still fail to come to a settlement, then the IRS seizes the funds in your bank account.

Now you have the smoking gun…Use it!

By: Richard Close

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A US government tax is normally imposed on any large gift, which a Registered Tax Return Preparer must advise a taxpayer about owing. The gift is not reported by the recipient as taxable income. Rather, a donor reports the amount on a gift tax return and pays any taxes due.

The purpose of the gift tax is to avoid permitting a donor to give away property right before death in order to avoid estate tax. Gift tax is therefore part of the law dealing with estate tax. A RTRP should advise a taxpayer about a reportable gift even if the tax professional only prepares income tax returns. This is one of the ethical standards requiring tax preparers to assist individuals in not underreporting taxable transactions.

The same lifetime exclusion for the estate tax applies to gift tax. That is, estates or gifts below a total lifetime value do not incur the tax. This amount is subject to change by statute. It is $5,000,000 beginning with the 2011 tax year. Therefore, anyone who dies that year may have excluded up to $5,000,000 of combined gifts and estate value from the tax.

Educational training for the tax preparer exam includes information about taxable gifts. Gifts are not taxable in many cases. There is a tax-free exclusion representing the amount that one person can give away annually to anyone else. This exclusion is $13,000 for the 2010 tax year but is adjusted each year for the cost-of-living.

The exclusion is not limited to family members. It applies to all gifts. In addition, married individuals can agree to gift splitting. This allows them to jointly give twice the annual exclusion to one person.

When taking a tax class, you will find examples for application of the gift tax. A possible scenario involves a gift of $25,000. The $12,000 amount over the annual exclusion is reportable on a gift tax return. However, it can be excluded from a tax assessment if part of the lifetime exclusion is applied.

In addition, if the individual is married and the spouse agrees to gift splitting, they can each report gifts of $12,500 that both fall under the annual exclusion. Your tax courses teach you how gift tax returns are used to report gift splitting.

The gift tax is applicable to almost every type of gift. However, there are some exceptions. These include gifts to spouses, political organizations, amounts paid directly to providers of healthcare or education.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

By: Sawyer Adams

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Rock Bottom: So you’ve got an IRS tax debt? Don’t panic; you aren’t alone. Thousands of American Taxpayers owe the IRS in back taxes. The tricky part is getting the issue resolved, so you can get things back to normal. But with all of these tax resolution companies promising so many things, how do you know what’s best for you? Read up on some of the options available.

Offer in Compromise: You may have heard of this program through the “Pennies on the Dollar” commercials. But the Offer in Compromise Program is a little more complicated than that. The program involves proving to the IRS that you can’t possibly pay the debt, so you come to terms on a settlement, usually a much smaller amount than the actual debt. Depending on your financial situation, you may qualify for the program. Make sure you have an experience tax professional review your finances to see if you qualify.

Installment Agreement: This is a common resolution program. The qualifications are usually easy to meet and the process is very simple. The IRS allows you to pay the debt in monthly installments, rather than paying it all up front. Let’s face it, most people don’t have $50,000 dollars in their back pocket to pay the IRS. So this program allows you to break your debt without breaking your finances. But remember, the IRS decides how much you will be paying monthly.

Currently Not Collectible: If you’ve just lost your job, or some extenuating circumstance is keeping you from either of the above options, you could be eligible for Currently Not Collectible (CNC). This program basically states that if the government were to take any money from you, it would put you into a state of financial hardship. While this isn’t a final solution, this program can give you time to collect you finances and get back on your feet so you can resolve the debt at a later time.

Penalty Abatement: This program is specifically designed for penalties. Let’s say you had an IRS debt, but something major was keeping you from filing or paying the debt (death of a family member, illness of a family member, etc.). The original debt doubled or even tripled due to penalties that you don’t think were justified because you really couldn’t address the issue at the time. If this sounds like you, you can get up to 30% of the penalties removed with this program.

Do it Right: If you’re going to apply for any of the above programs, make sure you do it correctly. First of all, don’t let anyone tell you that you qualify for something unless they’ve reviewed your financial situation. Secondly, make sure it’s a company that you can trust. You want someone that can back themselves up with experience and knowledge. As long as you keep that in mind, you’ll be well on your way to resolving your tax issue once and for all.

Now you have the Smoking Gun…Use It!

By: Richard Close

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Equity is always and everywhere a central issue in taxation. From one perspective, the principal rationale for taxes in the first place may be thought of as an attempt to secure equity. After all, governments do not need taxes to secure money because they print the money in the first place. The role of the tax system is instead to take money away from the private sector in as efficient, equitable, and administratively least costly fashion as possible. Equity, with efficiency and administrability, is thus one of the three principal objectives in designing any tax system.

Of course, exactly what is considered to be equitable (or fair) by any particular person may differ from conceptions held by others and in the end only through the political institutions within which countries reconcile (if they do) conflicting views and interests can a country’s views of what constitutes an equitable tax system be defined and implemented although of course the results of this process may diverge widely from what others may think of as fair.

In general, equity issues may be approached at two different levels.

First, one may consider the details of exactly how different taxes impose burdens on taxpayers who are in the same and different economic circumstances.

Secondly, one may instead focus on the overall effects of taxation on the income and level of well-being of different people. The policy implications of these two different ways of approaching the equity of taxation may be quite different, with economists tending to take the second approach while much popular discussion of taxation instead takes the first approach. Focusing on the implications for equity of details of particular taxes leads, for example, to proposals to alter the rates and structures of particular taxes such as VAT. Although such proposals may improve horizontal and vertical equity within the limited group subject to the full legal burden of the tax, the same changes may sometimes actually exacerbate inequity more broadly considered. From the perspective of social and economic inequality, what matters in the end is surely the overall impact of the budgetary system on the distribution of wealth and income rather than the details of particular fiscal instruments like VAT. Nonetheless, such considerations are seldom given much weight when it comes to tax design, a process which almost invariably proceeds on a tax-by-tax basis.

In many countries, for example, consumption taxes are generally considered to be highly regressive. Some may note that taxes on consumption are less regressive on a lifetime rather than annual perspective, but given the relatively short life expectancies in many economic transition countries (ETC) and the subsistence level at which many people in such countries live daily, such refinements are likely to carry little weight. It is thus not surprising to find that many ETC provide for reduced VAT rates or exemptions for certain “basic” items such as some foods, passenger transport, medical services, and cooking fuel. In some countries, substantial differences exist in consumption patterns between income groups. More generally, however, the common riposte to such policies is that whatever small degree of progressivity they may achieve could be more effectively and fairly attained through small changes in the income tax or by adjustments in transfer payments, although in countries in which the poor do not as a rule suffer from income tax or benefit from transfer payments this observation is largely irrelevant.

The conventional argument that there is unlikely to be much gain in imposing differential “luxury” rates under a VAT even in ETC given the efficiency and administrative costs to which such differentiation gives rise, seems convincing, especially since more can be done with less collateral damage through excise taxes on such commodities, if desired. But the conventional case for imposing VAT at a uniform standard rate and on as broad a base as possible in such countries seems less convincing.

A uniform VAT is likely to increase the price of many goods essential to the poor. Because the poor may consume a relatively small amount of such products, it is undoubtedly true that, much of the benefit of such exemptions will go to the non-poor. Nonetheless, in view of both the relatively heavy tax burden from such taxes on the poor in some ETC and the general inability of governments in such countries to provide offsets to such tax burdens through other fiscal adjustments, some such offset often seems quite justifiable.

Zero-rating for distributive reasons, however, is perhaps inadvisable in countries like Albania already facing many difficulties with VAT refunds, and exemptions increase cascading and by breaking the VAT chain make effective enforcement more difficult. Perhaps, therefore, a reduced rate might be the best approach, although more careful analysis is needed of exactly what level and form of relief is best for the particular circumstance of a particular country. There are too many instances in which the items taxed (or not taxed) in different ways appear to have been chosen arbitrarily by fiat rather than in a reasoned fashion to make one comfortable with the state of our knowledge on this issue. Moreover, even if a country has worked out sensibly what is best at a point in time, the issue needs to be revisited from time to time, both because of the “exemption creep” and because since circumstances change what is sensible may well change also

A final point that deserves mention with respect to VAT and equity in ETC is the importance of the shadow economy. Many ETC have a large economic sector that is effectively not subject to direct taxation. This reality clearly should affect how one assesses the effects of different fiscal instruments on equity. It is not at all impossible; for instance, that in some cases even a uniform broad-based VAT may be more progressive than more nominally progressive taxes (such as the personal income tax) that in practice burden only a limited group of wage-earners.

By: Eduart Gjokutaj

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Once you make the decision to sell your home, there are a bevy of issues you need to keep in mind. As with most anything involving money, taxes are one such subject.

The real estate market is definitely pulling back. There is no longer any dispute about that. Still, people that have owned their homes for more than three years are sitting pretty because property appreciation was on steroids for so long. If you are one of these people or have owned your home even longer, you are sitting on a big profitable nest egg. So, what happens when you sell it?

The sale of a home is viewed as a business transaction for the most part by the IRS. Simply put, is there a profit? If there is, the profit is going to be taxed. Unlike what you would expect with a business, the tax is going be a capital gain version. The tax will be based on the sales price minus the original purchase price plus any improvement costs. Let’s look at a simple example.

Assume I purchased a home in San Diego in 1995 for $300,000. I spent $50,000 over the years doing improvements. In 2007, I decide to sell and move to a less crowded area of the nation. I sell my home for $600,000. How do I look on taxes? Well, I have a profit of $250,000 [$600,000 - $350,000].

So, do I have to pay capital gains tax on the $250,000? Nope! There is a great exemption built into the tax code. As long as we are talking about my main home and I haven’t sold in the previous 2 years, I can claim an exemption. For a single person, the exemption is $250,000. For married couples, it is $500,000. Not bad, eh?

This exemption is not a one time affair. It can be used time and again over the years, so you should be planning your home purchase and sales accordingly. Avoiding paying capital gains tax on hundreds of thousands of dollars definitely calls for taking the time and effort to plan out the process.

By: Raynor James

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