Kansas Family and Divorce Lawyer

Wife’s student debt is costing husband -- Injured Spouse

Here is a great Q&A from Bankrate.com. The advise in the answer applies not only to student loans, but to overdue child support.

Q:

My wife had a student loan, but the school went bankrupt before she could finish the course. She did not get her training and the school kept all tuitions. For the past 17 years when we've filed taxes, the state of Florida has been taking them. The federal government has dismissed the loan, but a company in Florida bought the loan and somehow they got approval to take my tax refund. Can they take my tax refund even if it was incurred before our marriage? How can I make them understand that the student loan has been charged off?

A:

IRS Tax Topic 203 discusses the Treasury Offset Program for past-due obligations. These include amounts owed for child support, federal agency debts and state income tax obligations.

Child Dependency Deductions: Must File Form 8322

I have touched on this issue before. And based on a U.S. Tax Court ruling, the IRS is taking this requirement serious.

As stated on a fellow family law blog, New York Divorce Report:

In order for the non custodial parent to take the dependency deduction, it is essential to file the Form 8332 with the tax return

So, make sure you file the proper forms with your tax return if you are planning to take the deduction. In addition, make sure you discuss this issue with your attorney and have the proper language included in any orders or settlement agreements that each party will execute the necessary forms so you can take the deduction.

Dependency Deduction for Non-Custodial Parent Form 8332

The tax consequences of separations can impact a number of areas. One such area is the deduction for dependents.

In Smith v. Commissioner, the United States Tax Court (Tax Court) addressed the issue of whether the taxpayer, a non-custodial parent, could claim the dependency deduction. The Tax Court also addressed whether the taxpayer could claim the child care credit, child tax credit, and earned income credit.

The taxpayer had a biological child with a woman (mother) that he never married. During the year in question (2003), the taxpayer and the mother did not live together and the son lived with the mother and her husband during the majority of the year. The taxpayer and the mother did not have a written agreement regarding who could claim the child as a dependent. Both the taxpayer and the mother claimed the child as a dependent and the IRS denied the taxpayer's dependency deduction, as well as other child-related credits. The taxpayer did not attach to his 2003 return a Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents) or similar statement.

Deduction for Dependents: A taxpayer is generally allowed a deduction for each dependent (see IRC section 151). A dependent includes a son or daughter of the taxpayer in which the taxpayer provides over half the support during the year (see IRC section 152).

Divorced or separated parents: A child that receives over half its support from parents that are divorced, separated or live apart during the last six months of the year is treated as receiving over half the support from the parent that had custody for the greatest part of the year. The non-custodial parent may claim the dependency deduction if the individual files Form 8332 or similar statement that the custodial parent will not claim the child as a dependent.

Court Decision: The Tax Court held that the taxpayer was not entitled to the dependency exemption deduction since he was a non-custodial parent (i.e., did not have custody over half of the year) and did not attach Form 8332 to his return.

The Tax Court also denied the child care credit and child tax credit since those credits require that the taxpayer satisfy the dependent requirement under section 151. Lastly, the Tax Court also denied the earned income credit because the child's principal place of abode was not with the taxpayer for more than half the year.

Read it all at Family Law Taxation blog.

Source for Post: California Divorce and Family Law.

Exemption hinges on custody time

Q. My divorce degree lets my ex-husband claim one of our two children on his tax return even though they both live with me. Since my ex-husband is behind on paying child support, can I claim both children?

A. Being behind on child support payments does not typically affect the right to claim a dependency exemption for a child.

With divorced taxpayers, the general rule is that the parent with custody of the child for the greater part of the year receives the dependency exemption as long as the child does not provide more than one-half of his or her own support.

If a child spends an equal amount of time with each parent, the parent with the higher adjusted gross income will receive the dependency exemption.

Of course, there are exceptions to this general rule.

One such exemption is with pre-1985 divorce decrees or separation agreements between parents, which grants the noncustodial parent the dependency exemption. In such a case, the noncustodial parent receiving the dependency exemption must provide at least $600 of support for the child during the year.

The other exception to the general rule is when the custodial parent releases the right to claim the dependency exemption for a child to the noncustodial parent.

This transfer is granted by the custodial parent signing a written waiver. Generally, IRS Form 8332 is used for these purposes and must be attached to the noncustodial parent’s tax return for each year a dependency exemption for the child is claimed. The divorce decree can also be used if it addresses specific issues required by the IRS.

Additionally, for the noncustodial parent to claim the child on his or her tax return, the child must receive over half of his or her support for the year from one or both of the parents.

Public assistance payments, such as Temporary Assistance for Needy Families, are not considered support provided by the parents. Also, the child must have been in the custody of one or both of the parents for more than half the year.

IRS Form 8332 or a similar statement can be used to release the claim of exemption for a child for the current year, specific future years or all future years.

Your divorce decree, if specifically worded, can serve as an equivalent statement in lieu of Form 8332, and your ex-husband can use it to claim the dependency exemption.

To serve as your release of the exemption for one of your children, your divorce decree or agreement must include all of the following information:

•The noncustodial parent can claim the child as a dependent without regard to any condition (such as payment of support).

•The other parent will not claim the child as a dependent.

•The years for which the claim is released.

Q & A from the Kansas City Star.

Thanks to the California Divorce and Family Law Blog for the heads up on this one. I missed it in my RSS reader.

NON-CUSTODIAL PARENT'S DEDUCTION FOR DEPENDENTS:

The tax consequences of separations can impact a number of areas. One such area is the deduction for dependents.

In Smith v. Commissioner, the United States Tax Court (Tax Court) addressed the issue of whether the taxpayer, a non-custodial parent, could claim the dependency deduction. The Tax Court also addressed whether the taxpayer could claim the child care credit, child tax credit, and earned income credit.

The taxpayer had a biological child with a woman (mother) that he never married. During the year in question (2003), the taxpayer and the mother did not live together and the son lived with the mother and her husband during the majority of the year. The taxpayer and the mother did not have a written agreement regarding who could claim the child as a dependent. Both the taxpayer and the mother claimed the child as a dependent and the IRS denied the taxpayer's dependency deduction, as well as other child-related credits. The taxpayer did not attach to his 2003 return a Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents) or similar statement.

Tax Court Denies Dependency Deduction for Non-Custodial Parent Because He Did Not Include a Signed Form 8332 With His Return

Taxes and a Qualified Domestic Relations Orders (QDRO)

An increasingly large portion of the assets of married couples consist of rights to payments and stock from pension plans. In many states such assets are subject to division during a divorce. Divorce and division of property are generally controlled by state law, but pension plans are controlled by federal law in many respects.

Source for post and the rest of the story: Chicago Family Law Blog

And thanks to the Louisville Divorce Blog for the heads up on this great post.

Top 10 Tax Breaks, On The House

Here they are:

• Mortgage Loan Interest

• Home Improvement Loan Interest

• Points

• Property Taxes

• Capital Gains Exclusion

• Home-Based Business Deduction

• Selling Costs and Capital Improvements

• Moving Costs

• Mortgage Tax Credit

• Energy Tax Credit

Source: Real Estate Update and Real Estate News and Information

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Taxes, Real Estate

Divorce and Taxes

IRS Publication 504 explains tax rules that apply if you are divorced or separated from your spouse. It covers general filing information and can help you choose your filing status. It also can help you decide which exemptions you are entitled to claim, including exemptions for dependents.

This publication also discusses payments and transfers of property that often occur as a result of divorce and how you must treat them on your tax return.

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Taxes, Divorce, Divorce and Finances

Using your alimony to save for retirement and get a deduction

If you're divorced and don't have a paying job, you may think you're not allowed to make an IRA contribution, because the rule is you must have earned income to do so. However, alimony received is treated as taxable income on your federal return, so, in fact, you are eligible

The ex-spouse who pays the alimony may use the payments to reduce his or her gross income.

Source of Post: CNNMoney.com

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Taxes, Retirement, Alimony, Spousal Maintenance

Tax Tips for 2006

With new years come new tax rules. So it's time to get to know them. In some circumstances, existing rules have simply been tweaked. For instance, the standard deduction for married households filing jointly this year rises to $10,300, up from $10,000 in 2005. For singles, the deduction goes up from $5,000 to $5,150.

But in other cases, households can expect entirely new tax breaks.

For instance, if you're considering renovating your home, Uncle Sam is now offering a new tax credit for making energy-saving improvements. The credit applies to things like the installation of new insulation, new windows, and energy-efficient heating and cooling systems. The credit is available only for improvements made from the start of 2006 to the end of 2007.

Among some other things taxpayers should keep in mind as the new year gets underway:

• Your personal exemption rises. This year, the personal exemption—the amount taxpayers can automatically deduct from their taxable income—rises from $3,200 to $3,300.

• 401(k) caps increase. Last year, the annual federal limit for 401(k) contributions was $14,000. And the so-called catch-up provision—the additional amount that the federal government allows workers 50 and older to stuff into their accounts—was $4,000. This year, the basic federal cap gets pushed up to $15,000 while catch-ups rise to $5,000.

• IRA catch-ups also grow. While the federal cap on contributions to an individual retirement account—either traditional or Roth—holds steady at $4,000 this year, the annual catch-up for older workers rises from $500 to $1,000.

• IRA eligibility changes for married couples. Last year, the phaseout for IRA deductions for married households covered by a retirement plan at work and filing jointly started at $70,000. And those earning $80,000 or more could not deduct any of their contributions. This year, the phaseout starts with incomes of $75,000 or more. And contributions are not permitted for those couples earning $85,00 or more. For singles, the phaseout rules remain the same as in 2005. They start at $50,000 in income and end at $60,000.

Source for Post: U.S. News & World Reports

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Taxes