Archives for April 2023

Untying the Knot: The Tax Implications of a Divorce

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From the division of marital property to child custody settlements, ending a marriage often includes complex legal ramifications that can impact your family’s finances. But have you considered the tax implications?

Just as there are financial and legal to-dos for newlyweds, there are also tax-related administrative tasks to tackle once a divorce is finalized.

Most divorcees want to maximize their tax position — and minimize their pay out to Uncle Sam. While every situation is unique, here are some common tax reminders related to a divorce:

Tax filing status. Your marital status controls your filing status. When changing from married to divorced, your standard deduction and income tax payment will likely change as well.

Filing statuses are dependent on when a divorce is finalized. If the new year begins before a divorce is official, you’re still married in the eyes of the IRS and must file a joint return for the previous year or choose married filing separately.

Tax withholding. If you’re working, you need to update the amount withheld from your paycheck. Complete a new Form W-4 to revise your tax withholding amount within 10 days of signing your final divorce papers.

Child support. If you’re receiving child support, the amount is not included as part of your taxable income. If you’re the one paying the support, that expense is not deductible.

Alimony. Alimony is also not deductible by the party on the paying end. And similar to child support, the recipient doesn’t have to include it as taxable income.

Dependents. The custodial parent may claim a child as a dependent for tax purposes. By definition, this is the parent with whom the child spends the majority of nights.

Property settlements. If a marital property is sold as part of your divorce settlement, there can be significant tax ramifications due to unrealized capital gains.

These are general considerations and should not be taken as financial or legal advice.  Consult with your legal or tax professional regarding your personal situation for guidance tailored to your specific needs.

Turning the page on a difficult time of life

Divorce can be the start of an exciting new chapter. But as you settle back into the single life, it’s important to handle financial and administrative chores for a clean a slate. The professionals at Magone & Company have the guidance and expertise in dealing with these tax matters and more. Don’t hesitate to give us a call today at (973) 301-2300.

Tax Penalties: How to Get the IRS to Forgive & Forget

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Whether you didn’t file your tax return on time or didn’t prepare an accurate return, one thing is for certain: the IRS will come after you waving a penalty flag.

Mistakes happen, but the price tag per penalty varies. For example, the failure-to-file penalty is 5% of your unpaid taxes for each month that the return is late. If five months go by and you haven’t paid up, the failure-to-file penalty will max out, but the failure-to-pay penalty continues to grow until it’s settled, up to 25%.

There is some good news, however. If the IRS issues a penalty, there are circumstances that may grant you some relief:

Reasonable cause

The IRS may remove or reduce a penalty if you attempted to comply with tax laws but were unable due to conditions out of your control, such as:

  • Death or serious illness of a close family member
  • System issues that delayed a filing
  • A fire or other natural disaster

First-time abatement or other administrative waiver

A first-time abatement penalty waiver is the most common administrative waiver for individual taxpayers and businesses that receive their first tax penalty. To qualify, you must meet the following conditions:

  • You’ve demonstrated past compliance, meaning you’ve filed the same type of return for the past three years and didn’t receive any penalties during that time.
  • You’re currently compliant, having filed all required returns or filed a valid extension, and you’ve paid all other taxes due or are under a payment plan.

Statutory exception

According to the IRS, the following reasons may constitute what is known as a statutory exception:

  • Mailed a return on time but still received a penalty
  • Received incorrect IRS advice
  • Lived in an area affected by a federal disaster
  • Were stationed in a military combat zone

Wiping the slate clean

To apply for relief due to any of these reasons, your first step is to contact the IRS via the toll-free number on your penalty notice. If the IRS is unable to approve your request over the phone, you’ll be given next steps toward appealing your penalty.

Our advice? Don’t go it alone. A trusted tax advisor can help you sort through the IRS rules and ensure you have a case for penalty forgiveness. Reach out to the tax resolution experts at Magone & Company today at (973) 301-2300 for assistance.