We're Going Wrong: Tax Implications of Divorce

It may be time to find a divorce lawyer (and a GREAT tax accountant) if you open your eyes one morning and your spouse sings this to you:

Please open your eyes
Try to realize
I found out today we're going wrong

Please open your mind
See what you can find
I found out today we're going wrong

Divorce is the final termination of a marital union, canceling the legal duties and responsibilities of marriage and dissolving the bonds of matrimony between the parties (unlike annulment which declares the marriage null and void). Divorce laws vary considerably around the world but in most countries it requires the sanction of a court or other authority in a legal process. The legal process for divorce may also involve issues of alimony (spousal support), child custody, child support, distribution of property and division of debt.

Personally speaking, clients that are going through divorce are the toughest to deal with. There are alot of emotions involve. Alot of the times, they didn't take into account the tax implications of divorce. For example, who will claim the children on their tax returns. I would recommend to consult with your tax accountant throughout the divorce procedures. The worst thing you can do is talk about the divorce when the tax return is ready to be filed.

If you need great information regarding the tax implications of divorce, check out this Forbes article written by Peter J. Reilly http://www.forbes.com/sites/peterjreilly/2012/05/06/divorce-lawyers-frequently-not-the-best-tax-advisors/

“My husband and I have never considered divorce... murder sometimes, but never divorce.”
― Joyce Brothers

Sole Proprietor Tax Deductions

Hang ups, let downs

Bad breaks, set backs
Natural fact is
I can’t pay my taxes
Oh, make me wanna holler
And throw up both my hands

I love to find any reason or excuse to write down one of Marvin Gaye’s lyrics. My client who is a sole proprietor sang this verse to me as I explained his tax liability. I love all of my clients so I didn’t know whether or not I should laugh or cry. I chose to play it safe and did both! A sole proprietor’s obligation may include taxes such as sales, estimated, payroll, self-employment, federal, state, local, etc. It has been suggested that we should create a new postage stamp bearing the picture of a weeping taxpayer. Sole proprietors must be aware of all business tax deductions. As a sole proprietor, you are allowed a laundry list of tax deductions. These are expenses that are necessary and relevant to your business. Every tax season, a lot of sole proprietors neglect to maximize their chances of reducing their tax liability. The reason is that they overlooked business deductions that they could have taken. Below is a list of business tax deductions for you to consider.

The Home Office Deduction

This deduction can help take the biggest bite out of your tax bill. If you are a sole proprietor and work from home in a space that is regularly and exclusively used for your business, you can take this deduction, even if that space is not a completely separate room. However, it must be a clearly defined workspace where no personal activities take place. Just because you did some work on your living room’s couch doesn’t make it a qualified workspace for home office deduction purposes.

General Business Expenses

Even if you don't take the home office deduction, there are many other expenses you can deduct to shrink your tax bill. Keep all your receipts throughout the year and a running log or weekly diary of expenses to prove that your deductions are legitimate. Business expenses can cover many items and services, including:

• office supplies......deductible

• printing……. deductible

• postage and shipping……. deductible

• business insurance….. deductible 

• professional fees…… deductible (accountants love to get paid)

• Gifts to keep your spouse happy……Not deductible! Oh yeah, start running and don’t look back because the IRS is coming after you.

Travel and Entertainment

Generally, you can deduct all of your travel expenses if your trip was entirely business-related. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination, including tips, cab fare, and other "life on the road" expenses such as dry cleaning. Meals are the only exception. You can deduct only 50 percent of your meals while traveling.

If your business trip includes personal side trips or extended stays for a personal vacation, you can only deduct travel expenses used for business-related activities. For example, suppose you live in New York, and went on a 7-day trip to California. You spent the first 4 days in business meetings, and the other 3 days spending time with your family. Unless, Mickey Mouse is your business client, don’t try to deduct the family trip to Disneyland. In this example, you can only deduct the costs of the 4 days you spent on business activities. I know the IRS is so darn cruel!

Importance of a tax consultant

Now these baby ballers toy rappers

Calling out my name to bring the boy backwards
Shooting air balls at the basket
What you call money I paid more in taxes

Yes, I know that I’m the first tax accountant to use a Jay-Z verse in a tax article. I appreciate that even Jay-Z knows the importance of paying his taxes. As a sole proprietor, good records and qualified tax advice are essential to the survival of your business. It's always recommended to consult tax accountant like myself throughout the year. I provided you with a simple outline of possible business tax deductions to reduce your annual tax bill. However, tax laws are never simple and change on an annual basis. For example, I didn’t discuss topics such as depreciation, expiring tax credits, phase-outs, amortization, deducting car expenses, etc. Learning about tax changes throughout the year can help your business grow. If you can reduce your annual tax liabilities then you may have more money to invest in your business.

My final piece of advice is to file only honest tax returns. What is the difference between an IRS auditor and a Rottweiler? A Rottweiler eventually lets go! Filing fraudulent tax returns are never worth the risk.

You don’t have to say it….You’re Welcome.

So Wanna Be My Tax Preparer?

Ahh, do you smell it in the air? It is that time of the year, we all been waiting for. You may be thinking, “I thought the holiday season is over; I wonder if he’s talking about Valentine’s Day?” No, my friends, I’m talking about tax season! I must apologize, this is actually the IRS and businesses like Jackson Hewitt’s favorite time of the year. In deed, it’s still the time of giving. However, it’s not the time to give to your family but to your dear old Uncle Sam.

The good news is that you can call me “Coach Solomon” because I’m going to prepare you for the upcoming tax season. “Coach Solomon” sounds like a good movie title; I think I’m going to pitch my idea to Tyler Perry. Life is too short to fear the IRS. I’m not writing to confuse or scare you about taxes. It is my goal to take the fear out of taxes through education, straight-talk, and a touch of humor. If you learn the basics about taxes, I guarantee you will find numerous ways to cut your tax liabilities and preserve wealth.

Want to know a name that will absolutely ruin your day? You probably don’t want to hear the name but I will still tell you. Have you heard of Bernard Madoff? Mr. Madoff was a legend on Wall Street. Some of the richest and “so-called” smartest people in the world wanted to invest money with him. Today, he is accused of running a scam aka “Scam of the Century” that will cost investors billions of dollars (yes, billions)! Let’s be clear, I’m not talking about only one billion. Madoff’s scam is estimated to have lost about 50 billion dollars of investors’ money.

I brought up Mr. Madoff to illustrate that you should be very careful who you trust. Mr. Madoff is not a tax preparer but greed exists everywhere. Most return preparers like me (shameless plug) are professional, honest and provide excellent service to our clients. However, don’t think for a minute that all tax return preparers are honest individuals. Unfortunately, unscrupulous tax return preparers do exist and can cause considerable financial and legal problems for their clients. Examples of improper actions by unscrupulous preparers include the preparation and filing of false paper or electronic income tax returns that claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions.

Here are 10 tips from our friends at the IRS to keep in mind when hiring a tax return preparer:

1. A Paid Preparer is required by law to sign the return and fill in the preparer areas of the form. The preparer should also include their appropriate identifying number on the return. Although the Preparer signs the return, you are responsible for the accuracy of every item on your return. In addition, the preparer must give you a copy of the return.
2. Review the completed return to ensure all tax information, your name, address and Social Security number(s) are correct. Make sure that none of these spaces is left blank.
3. Review and ensure you understand the entries and are comfortable with the accuracy of the return before you sign.
4. Never sign a blank return, and never sign in pencil.
5. A Third Party Authorization Check Box on Form 1040 allows you to designate your Paid Preparer to speak to the IRS concerning how your return was prepared, payment and refund issues and mathematical errors.
6. Avoid preparers who claim they can obtain larger refunds than other preparers. If your returns are prepared correctly, every preparer should derive substantially similar numbers.
7. Beware of a preparer who guarantees results or who bases fees on a percentage of the amount of the refund. A practitioner may not charge a contingent fee (percentage of your refund) for preparing an original tax return.
8. Understand that the most reputable preparers will request to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. By doing so they have your best interest in mind and are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.
9. Choose a preparer you will be able to contact and one who will be responsive to your needs.
10. Investigate whether the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs, the state’s bar association for attorneys or the IRS Office of Professional Responsibility (OPR) for enrolled agents or the oversight agency in states that license or register tax preparers.

Bonus tips just because you mean so much to me:

Check IRS.gov for information regarding abusive shelters and other tax schemes and scams. Remember, if it sounds too good to be true, chances are it is.

The IRS can help many taxpayers prepare their own returns without the assistance of a paid preparer. Before seeking a paid preparer, you might want to consider how much information is available directly from the IRS through the IRS Web site.

Tax evasion is both risky and a crime, punishable by up to five years imprisonment and a $250,000 fine.

Remember, no matter who prepares a tax return, the taxpayer is legally responsible for all of the information on that tax return. Ask yourself if filing a fraudulent tax return is worth losing your freedom.

“Income tax returns are the most imaginative fiction being written today.”
Herman Wouk

Happy Tax Season… stay tune for more tax information!