March 2014 : Lesser Known Federal Income Tax Filing Tips and Related Info

Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature

by Joseph W. Cunningham, JD, CPA

Excerpt:

This is the time of year when income tax filing questions arise. The following presents selected tax filing tips and related information somewhat off the beaten path.

Joint Income Tax Returns

It is widely known that if a couple is legally married as of December 31, the couple may file a joint tax return for the year. This is often beneficial if one spouse has substantially more income than the other – usually resulting in the higher level income taxable in a lower tax bracket. In such situations, it is not uncommon for divorces concluding late in a calendar to defer entry of judgment into the succeeding year to take advantage of joint tax return filing one last time.

Whenever a joint return may be filed for a year and it is certain the parties will be divorced in the following year, the following matters may be relevant.

Joint and Several Liability

Parties will be jointly and severally liable for unpaid taxes and/or deficiencies later arising from an IRS tax examination. So, if it is suspected that one spouse is underreporting income and/or claiming excessive deductions, it is generally advisable that the other spouse not agree to file jointly.

While Innocent Spouse Relief protects some unwary joint filers from liability, such protection may not be available if a spouse had reason to believe that income is understated or deductions are padded.

Take Away – Consider potential liability before agreeing to le jointly to achieve tax savings.

Joint Tax Refunds

Most divorce settlements provide for the division of a tax refund on the final joint return. e check will be sent to the address on the return and will be payable to both parties. us, delay in receipt of a refund may result if the principal residence is used on the return and the refund is sent after the house is sold and the effective “forwarding address” period has expired. If this is forseeable, use another address on the return (e.g., in care of the CPA/tax preparer).

Take Away – Consider any potential logistical problems concerning receipt of a joint tax refund and make appropriate arrangements.

Joint Tax Overpayments Applied to Estimated Tax
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Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)