Beware That Divorce Or Separation May Have An Effect On Your Taxes

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Beware That Divorce Or Separation May Have An Effect On Your Taxes

Taxpayers should be aware of tax law changes related to alimony and separation payments. These payments are made after a divorce or separation. The Tax Cuts and Jobs Act changed the rules around them, which will affect certain taxpayers when they file their 2019 tax returns next year.

Old Law Still Applies To Agreements Executed On Or Before December 31, 2018.

Alimony paid to a spouse or a former spouse under a divorce or separation instrument (including a divorce decree, a separate maintenance decree, or a written separation agreement) may be alimony for federal tax purposes. Alimony is deductible by the payer spouse, and the recipient spouse must include it in income.

Alimony Requirements

A payment is alimony only if all the following requirements are met:

  • The spouses don’t file a joint return with each other;
  • The payment is in cash (including checks or money orders);
  • The payment is to or for a spouse or a former spouse made under a divorce or separation instrument;
  • The divorce or separation instrument doesn’t designate the payment as not alimony;
  • The spouses aren’t members of the same household when the payment is made (This requirement applies only if the spouses are legally separated under a decree of divorce or of separate maintenance.);
  • There’s no liability to make the payment (in cash or property) after the death of the recipient spouse; and
  • The payment isn’t treated as child support or a property settlement.

Alimony doesn’t include:

  • Child support,
  • Noncash property settlements, whether in a lump-sum or installments,
  • Payments that are your spouse’s part of community property income,
  • Payments to keep up the payer’s property,
  • Use of the payer’s property, or
  • Voluntary payments (that is, payments not required by a divorce or separation instrument).

New Law Applies To Agreements Executed On Or After January 1, 2019 And Certain Pre-2019 Agreements modified after 2018.

The new law relates to payments under a divorce or separation agreement. This includes divorce decrees, separate maintenance decrees and written separation agreements.

Beginning January 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse, or includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after December 31, 2018. 

If an agreement was executed on or before December 31, 2018 and then modified after that date, the new law also applies. The new law applies if the modification does these two things:

    • It changes the terms of the alimony or separate maintenance payments.
    • It specifically says that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Agreements executed on or before December 31, 2018 follow the old law. If an agreement was modified after that date, the agreement still follows the previous law as long as the modifications don’t do what’s described above.

Other Rules That Apply Under Both The Old And New Law

Child support is never deductible and isn’t considered income. Additionally, if a divorce or separation instrument provides for alimony and child support, and the payer spouse pays less than the total required, the payments apply to child support first. Only the remaining amount is considered alimony.

Reporting Alimony

If you paid amounts that are considered alimony, you may deduct from income the amount of alimony you paid whether or not you itemize your deductions. Deduct alimony payments on Form 1040, U.S. Individual Income Tax Return and attach Form 1040 Schedule 1, Additional Income and Adjustments to Income. You must enter the social security number (SSN) or individual taxpayer identification number (ITIN) of the spouse or former spouse receiving the payments or your deduction may be disallowed and you may have to pay a $50 penalty.

If you received amounts that are considered alimony, you must include the amount of alimony you received as income. Report alimony received on Form 1040 Schedule 1 or on Form 1040NR Schedule NEC, U.S. Nonresident Alien Income Tax Return. You must provide your SSN or ITIN to the spouse or former spouse making the payments, otherwise you may have to pay a $50 penalty.

What Should You Do?

If you are involved in a divorce, you need to know where you would stand on taxes whether you are paying or receiving party and avoid any potential tax problems from past or future years. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. And if you are involved in cannabis, check out what a cannabis tax attorney can do for you.

Tips For Students Making Taxes Easy For Students With Jobs

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It’s Summertime! Tips For Students Making Taxes Easy For Students With Jobs.

With summer here, many students will turn their attention to making money from a summer job. Whether it’s flipping burgers or filing documents, student workers need to know some facts about their summer jobs and taxes. For students working as employees, not all the money they will earn will make it to their pocket because employers must withhold taxes from their paycheck.

Here are some tax tips students should know when starting a summer job.

New employees:  Employees – including those who are students – normally have taxes withheld from their paychecks by their employer. When anyone gets a new job, they need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from the new employee’s pay. The Withholding Calculator on IRS.gov can help a taxpayer fill out this form.

Self-employment: Students who do odd jobs over the summer to make extra cash are self-employed. This include jobs like baby-sitting or lawn care. Money earned from self-employment is taxable, and self-employed workers may be responsible for paying taxes directly to the IRS. One way they can do this is by making estimated tax payments during the year.

Tip income: Students working as waiters or camp counselors who earn tips as part of their summer income should know tip income is taxable. They should keep a daily log to accurately report tips. They must report cash tips to their employer for any month that totals $20 or more.

Payroll taxes: This tax pays for benefits under the Social Security system. While students may earn too little from their summer job to owe income tax, employers usually must still withhold Social Security and Medicare taxes from their pay. If a student is self-employed, Social Security and Medicare taxes may still be due and are generally paid by the student.

Reserve Officers’ Training Corps pay: If a student is in an ROTC program, and receives pay for activities such as summer advanced camp, it is taxable. Other allowances the student may receive – like food and lodging – may not be taxable. The Armed Forces’ Tax Guide on IRS.gov provides details.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. The California Franchise Tax Board has up to four years to select a California State Income Tax Return for audit. In some cases this period is extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.
  • Mileage Logs for business use of vehicle.
  • Entertainment and Travel Logs for business activities.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. If you are involved in cannabis, check out what our cannabis tax attorney can do for you.

Be Prepared – All Taxpayers Should Plan Ahead For Natural Disasters

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Be Prepared – All Taxpayers Should Plan Ahead For Natural Disasters

Floods, wildfires, hurricanes, tornados and other natural disasters happen quickly and often with little warning.  No one can prevent these disasters from happening, but people can prepare for them.

IRS Tax Relief Details

The IRS usually announces tax relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

In each declaration the IRS will postpone certain deadlines for taxpayers who reside or have a business in the disaster area. As a result, affected individuals and businesses will have additional time to file returns and pay any taxes that were originally due during a disaster period. This relief typically extends also to businesses and includes payroll tax deposits.

Always check the declaration for areas covered, taxes covered and the extended date.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. The FTB has up to four years to select a tax return for audit. In some cases this period is extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.
  • Mileage Logs for business use of vehicle.
  • Entertainment and Travel Logs for business activities.

Develop And Implement Your Backup Plan

Do not wait for the next disaster to come for then it may be too late to retrieve your important records for a tax audit or for that matter any legal or business matter. And if you do get selected for audit and do not have all the records to support what was claimed on your tax returns, you should contact an experienced tax attorney who can argue the application of your facts and circumstances to pursue the least possible changes in an audit.

The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles Metropolitan Area (including Long Beach and Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. And if you are involved in cannabis, check out what our cannabis tax attorneys can do for you.

Tips For Taxpayers About The Sharing Economy And Taxes From renting spare rooms and vacation homes to car rides or using a bike…name a service and it’s probably available through the sharing economy which is proliferating through many online platforms like Uber, Lyft and Airbnb.

Top Four Tips For Taxpayers About The Sharing Economy And Taxes

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Top Four Tips For Taxpayers About The Sharing Economy And Taxes From renting spare rooms and vacation homes to car rides or using a bike…name a service and it’s probably available through the sharing economy which is proliferating through many online platforms like Uber, Lyft and Airbnb. Here are four tips you should know about […]

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What You Need To Know To Deduct Charitable Contributions On Your 2017 Income Tax Return

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The more itemized deductions you can rack up on you individual income tax return, the smaller amount of taxable income you will have which now puts more money in your pocket. Taxpayers who gave money or goods to a charity should be able to claim charitable contributions which get included as an itemized deduction on their 2017 federal tax return.

For those taxpayers looking to make charitable contributions in 2018 for their 2018 taxes, the good news is that the 2017 Tax Cuts And Jobs Act made no changes to the deductibility of charitable contributions.

So whether it is for 2017 or future years, here are some important facts you need to know about claiming charitable contributions to save on taxes and withstand an IRS audit.

  1. Qualified Charity. Only donations to qualified charitable organizations are deductible. Do not merely rely on the organization’s website or what the organization may state. If you are questioning whether an organization is qualified, you can check with IRS directly through the IRS website. To check the status of a charity, use the IRS Select Check tool. Keep in mind that religious institutions including churches, synagogues, temples, and mosques are considered “de facto” charitable organizations and are eligible to receive deductible donations even if they are not on the IRS’ website. However, you can never deduct donations to political organizations and candidates. Also, you cannot deduct contributions to specific individuals no matter how deserving or sympathetic to their tragic situation.
  1. You Must Itemize. To deduct donations, you must include these donations as Itemized Deductions on Schedule A of Form 1040. If the total amount of your Itemized Deductions does not exceed the Standard Deduction already given to you by the Federal government, you won’t get any real benefit from making these donations.
  1. Deductible Portion Of Donation May Be Reduced. You can only deduct the amount of your donation that exceeds the fair market value of the benefit received. If you get something in return for your donation, you would have to reduce your deduction by the value you received. Examples of benefits include merchandise, meals and tickets to events.
  1. Property donation. If you give property instead of cash, you can normally only deduct the item’s fair market value. Fair market value is generally the price you would get for the property item on the open market. Donating property that has appreciated in value, like stock, can result in a double benefit. Not only can you deduct the fair market value of the property (so long as you have owned it for at least one year), you will avoid paying capital gains tax.
  1. Donations From Your Retirement Account. Typically, if you want to make a donation from your IRA, you’d have to withdraw those funds, pay the tax and then make the donation. However, IRA owners who are age 70½ or older can transfer up to $100,000 per year to an eligible charity tax-free and the transfer counts toward your required minimum distribution (RMD) for the year. To be an eligible transfer, funds must be transferred directly by the IRA trustee to the charity. Withdrawing the monies first and then writing the check to the charity will not qualify for the non-recognition of income.
  1. Form to File. You would file Form 8283 for all non-cash gifts totaling more than $500 for the year. Keep an itemized list of for donations of non-cash items – do not just state you gave a bag of clothes and expect to substantiate the value of what you gave. Instead be specific, noting the description and condition of the items. You can generally take a deduction for the fair market value of the item which is the price that a willing buyer would pay to a willing seller. If you contribute property worth more than $5,000, you must obtain a written appraisal of the property’s fair market value.
  1. Proof of Donation. If you donated cash or goods of $250 or more, you must have a written statement from the charity. The statement must show:
    • Amount of the donation.
    • Description of any property given.
    • Whether the donor received any goods or services in exchange for the gift.  

For cash donations under $250, you should always have substantiation of payment by a bank record such as a canceled check or credit card receipt, clearly annotated with the name of the charity or in writing from the organization. Even with a statement from the charity, it is still a good idea to retain this evidence of payment.

  1. You Can’t Deduct The Value Of Your Time. While your time is valuable, when you volunteer your time for charities, the IRS does not allow a charitable deduction for the time you spent. However, most out of pocket expenses relating to volunteering are should be deductible so long as they are not reimbursed to you or considered personal. Out of pocket charitable expenses which might be deductible include parking fees and tolls; other travel expenses; uniforms or other related clothing worn as part of your charitable service; and supplies used in the performance of your services. You will need to keep receipts evidencing payment in case you are questioned by the IRS.
  1. Timing Of Contribution. Contributions are deductible in the year the contributions are made so for the 2017 tax year that would had to been no later than December 31, 2017. But that doesn’t necessarily mean that by the 31st the cash payment had to be made out of your account. Contributions made by text message are deductible in the year you send the text message if the contribution is charged to your telephone or wireless account. Contributions made by credit card charges are deductible in the year charged so long as the charge is posted by your credit card company in that tax year. The credit charge itself does not have to be paid off by the end of the tax year it was charged. Similarly, checks which are written and mailed by the end of the year will be deductible for the year written if they are not cashed until the following year. Announcing that you intend to donate assets will not qualify for a deduction in the current tax year until the tax year you make good on the pledge.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, unreported crypto currency transactions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

IRS 2017 Tax Deductions

Itemized Deductions Or Standard Deduction? – Pick Your Tax Savings For 2017!

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On December 22, 2017, President Trump signed into law the 2017 Tax Cuts And Jobs Act. It’s been a good 30 years since the last time the Internal Revenue Code received such a major update. Among other changes, the new law increases the Standard Deduction For Individuals starting with 2018. But for 2017 tax returns, the old law still applies where individual taxpayers can still effectively choose to itemize or take the Standard Deduction.

Most taxpayers claim the standard deduction when they file their federal tax return. However, some filers may be able to lower their tax bill by itemizing when they file their 2017 tax return. Before choosing to take the standard deduction or itemize, it’s a good idea to figure deductions using both methods and choose the method with the most benefit.

So here are some tips to help you decide how to save the most in 2017 taxes:

Figuring Itemized Deductions

Taxpayers who itemize basically add up the year’s deductible expenses to arrive at their total deduction. Deductions include:  

Home mortgage interest

State and local income taxes or sales taxes – but not both

Real estate and personal property taxes

Gifts to charities

Casualty or theft losses

Unreimbursed medical and employee business expenses above certain amounts

Know the Standard Deduction

For taxpayers who don’t itemize, the standard deduction for 2017 depends on their filing status:  

Single — $6,350

Married Filing Jointly — $12,700

Head of Household — $9,350

Married Filing Separately — $6,350

Qualifying Widow(er) — $12,700

If a taxpayer is 65 or older, or blind, the standard deduction is more, but may be limited if another person claims that taxpayer as a dependent.

Tax Planning For 2018

Starting in 2018 tax rates are lower so less of you will get to keep more of your income, a deduction is worth less. On top of that, several popular deductions are disappearing or getting substantially limited and in combination with a nearly doubled standard deduction, less taxpayers will be itemizing.

Limit On Deduction For State And Local Taxes – A taxpayer may claim an itemized deduction of only up to $10,000 ($5,000 for a married taxpayer filing a separate return) in (i) personal state and local property taxes, and (ii) state and local income taxes (or sales taxes in lieu of income taxes). Taxes paid or accrued in carrying on a trade or business are not subject to this limitation.

Limit On Deduction Of Mortgage Interest – For mortgages incurred after December 31, 2017, taxpayers may deduct interest on up to $750,000 of principal (mortgages existing before January 1, 2018 are still subject to the pre-existing law’s $1 million limit). But for all taxpayers there is no longer a deduction for interest paid on home equity loans.

Elimination Of Miscellaneous Itemized Deductions And Deduction For Moving Expenses – A taxpayer can no longer deduct miscellaneous itemized deductions which include unreimbursed employee expenses and tax preparation costs. Also the deduction for moving expenses is gone.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), South Los Angeles County (Long Beach) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.