You've filed for divorce. The assets and debts are divided up and the custody issues have been arranged. Everything seems to be taken care of. Right? Wrong. If you haven't cleared up the issue of income taxes, you still have some potentially sticky issues to take care of. Here are four tax issues you'll need your attorney to help you clear up before the divorce is finalized.
Division of the Next Tax Refund
You've filed for divorce at the end of the year. That means next year's tax return will still be based on your combined income this year. If you're planning on receiving a tax refund, now is the time to decide how that will be divided.
Will one of you claim the entire refund? Or, will you split it evenly? If you've decided to split the refund evenly, you'll need to have separate accounts set up so that the money can be deposited in the proper bank accounts.
Payment of a Tax Liability
If your income was too high and you'll be left owing taxes, you'll need to come to an agreement regarding the payment of that liability. For instance, will you both pay half? If the money is to be deducted from a bank account, from whose account will it be drawn?
It's also important that you sit down and do a mock tax return based on an estimate of your year's income. This will prevent potential surprises when the tax bill comes due.
Shared Liability for Future Payments
There is always a possibility that your tax returns will be audited at some point in the future. How will you and your spouse deal with those issues? If an audit leaves you owing back taxes, penalties, or interest, will you and your spouse split the cost? Will one of you take the responsibility of repayment? To avoid potential complications later on, sit down and determine how future audits will be handled between the two of you.
Parent to Claim Children
If you have children, there is the issue of child tax credits, child care deductions, and even earned income credit—if you're low income. Who will claim the children? Will this be a permanent arrangement? Or, will you switch off claiming the children each year so that both of you receive the credits?
When filing for divorce, it's important that you discuss future tax issues. The list provided above will help you work out the final tax arrangements before the divorce is final. For more information, contact accountants like those at Tolman Kirk Clucas PLLC.
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