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Thyden Gross and Callahan LLPCounselors and Attorneys at Law

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News and comments about divorce, child support, child custody, alimony, equitable property distribution, father’s rights, mother’s rights, family law, laws on divorce and other legal information in Maryland.

Archive for the ‘Taxes’ Category

Can Alimony Be Longer Than The Marriage?

Wednesday, July 29th, 2015

Dr. Murray Malin, an anesthesiologist, was 38 when he met Marcie Minenberg, 27. She went to law school but did not pass the bar exam and was working in a jewelry store. They wed, had one child, and divorced in Maryland after three years of marriage. At the time of trial, Murray had stopped practicing as a doctor due to a drug addiction.

The trial court awarded Marcie alimony of $3,500 a month, non-taxable to her, for five years. Murray appealed arguing that (1) the court could not award alimony that was non-taxable and (2) the court could not award alimony for longer than the marriage.

The Maryland Court of Special Appeals agreed with Murray that the only alimony a court can award is taxable alimony. Parties can make alimony non-taxable, but only by agreement.

As for the length of alimony, the appeals court said there was no law against alimony that lasts longer than the marriage.

Malin v. Mininberg, 153 Md. App. 358, 837 A.2d 178 (2003)

Depreciation as Income

Wednesday, February 4th, 2015

In the Mumma case, the wife called the court’s attention to the depreciation deduction that the Husband was taking for his business.  She pointed out that depreciation is a non-cash flow event and so the money is available to the Husband.

The argument on the other side is that equipment really does wear out and needs to be replaced eventually.  When it does, it will take cash flow to purchase new equipment.

Taking a look at the Maryland Child Support Guidelines in Section 12-201 of the Family Law Article, we see that income from self employment means gross receipts minus ordinary and necessary expenses.

However, the statute goes on to say that ordinary and necessary expenses do not include accelerated depreciation, investment tax credits, or any other expenses the court determines in not appropriate to subtract.

So what about straight line depreciation?  Does the fact that the law expressly disqualifies accelerated depreciation but not straight line depreciation mean you get to deduct it from income?  Or does the catch-all provision at the end allow the court to decide?  In the cases I have tried, the trial judges have included straight line depreciation as income.

IRS Loses Millions in False Alimony Deductions

Friday, May 16th, 2014

When someone pays alimony they get a tax deduction for it. But the same amount should be included as taxable income on the return of the person receiving alimony. I think most divorce lawyers believed, and cautioned their clients that the IRS computers will automatically detect any variances and flag the returns. It turns out the IRS computers are not that good.

The inspector general for the IRS has issued a report, according to the Washington Times, that the U.S. government loses hundreds of millions of dollars a year in false alimony deductions. The report says that the IRS doesn’t have a system for detecting the false claims. 47 percent of returns filed in 2010 got it wrong said the inspector general.

Most cases involved a deduction for alimony without matching income on the recipient’s return. In other cases, taxpayers did not report who they were paying alimony to or gave a false taxpayer identification number for the recipient. “Apart from examining a small number of tax returns, the IRS generally has no processes or procedures to address this substantial compliance gap,” the report said.

Tax Planning for Divorce (Part 8-Retirement Funds)

Thursday, January 2nd, 2014

Guest Post by John Ellsworth, Esq.

Handle your retirement savings with care in a divorce as this is a very tricky area. If you cash out a 401(k) plan to give the money to your ex, for example, the IRS considers that a taxable distribution and you’ll be stuck paying the tax. The way to avoid this pitfall is to have the transfer made pursuant to a qualified domestic relations order (QDRO). Such an order gives your ex the right to the funds and relieves you of the tax burden.

Tax Planning for Divorce (Part 7-Home Sales)

Wednesday, April 24th, 2013

Guest Post by John Ellsworth, Esq.

If you and your ex decide to sell your home as part of the divorce, that decision may have capital-gains tax implications. Normally, the law allows you to avoid tax on the first $250,000 of gain on the sale of your primary home if you have owned the home and lived there at least two years out of the last five. Married couples filing jointly can exclude up to $500,000 as long as either one has owned the residence and both used it as a primary home for at least two out of the last five years.

For sales after a divorce, if those two-year ownership-and-use tests are met, you and your ex can each exclude up to $250,000 of gain on your individual returns. And sales after a divorce can qualify for a reduced exclusion if the two-year tests haven’t been met. What happens if you receive the house in the divorce settlement and sell it several years later? Then you can exclude a maximum of $250,000.

Tax Planning for Divorce (Part 6-Asset Transfers)

Thursday, March 21st, 2013

Guest Post by John Ellsworth, Esq.

When a divorce settlement moves property (typically, your house and part of his or her 401-K) from one spouse to another, the recipient doesn’t pay tax on that transfer. That’s the good news.

But it’s important to remember that the property’s tax basis moves with the property. If you get the house, you also get its basis. This means that when you sell the property you get to subtract how much you “paid” for the property from the sale price. The “how much you paid for it” part is called the “basis.”

So, if you get property from your ex in the divorce and later sell it, you will pay capital gains tax on all the appreciation before as well as after the transfer. (“Appreciation” means how much it’s gone up in value.)

That’s why, when you’re splitting up property, you need to consider the tax basis as well as the value of the property. A $100,000 bank account is worth more to you than a $100,000 stock portfolio that has a basis of $50,000. There’s no tax on the former, but when you sell the stock, you will owe tax on the $50,000 profit.

If your divorce lawyer isn’t familiar with how this all works, ask him or her to consult for an hour with a qualified tax lawyer to get the low-down.

Tax Planning for Divorce (Part 5-Payments to Your Ex)

Wednesday, February 27th, 2013

Guest Post by John Ellsworth, Esq.

If you’re paying alimony, you can take a tax deduction for the payments, even if you don’t itemize deductions.

Keep in mind, though, that the IRS won’t consider the payments to be true alimony unless they are spelled out in the divorce agreement. This is another rule for you to memorize: unless the divorce decree spells it out, it’s probably not going to be accepted by the IRS as alimony.

Your ex, meanwhile, must pay income tax on those amounts. Be sure you know your ex-spouse’s Social Security number. You have to report it on your tax return to claim the alimony deduction.

The opposite is true for child support: You don’t get a deduction for paying child support and the recipient doesn’t pay income tax.

Tax Planning for Divorce (Part 4-Child and Child Care Tax Credits)

Tuesday, February 12th, 2013

Guest Post by John Ellsworth, Esq.

Even if your ex gets the dependency exemption for the child, you can continue to claim the child-care credit for work-related expenses you incur to care for a child under age 13, if you have custody.

But only the parent who claims a child as a dependent may claim the $1,000 child tax credit.

Tax Plannning for Divorce (Part 3-Medical Expenses)

Thursday, January 31st, 2013

Guest Post by John Ellsworth, Esq.

If you continue to pay a child’s medical bills after the divorce, you can include those costs in your medical expense deductions even if your ex-spouse has custody of the child and claims the dependency exemption. But the best thing to do is to have this also stated in your divorce decree or marital separation agreement.

Tax Planning for Divorce (Part 1-Filing Status)

Friday, January 18th, 2013

Guest Post By John Ellsworth, Esq (Editor’s Note:  Today we start a new series of articles about tax planning in your divorce.)

If you and your spouse are separated but not yet divorced before the end of the year, you still have the option of filing a joint return. It’s when your divorce decree becomes final that you lose the joint return option.

Your marital status as of December 31 controls your filing status. If you can’t file a joint return for the year, you can file as a head of household after your divorce (and get the benefit of a bigger standard deduction and lower tax brackets) if you had a dependent living with you for more than half the year and you paid for more than half of the upkeep for your home.

If your divorce is still pending at as of December 31, you can either file a joint return (which always saves you money) or choose the married-filing-separately status.

 
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