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San Jose, CA tax attorney for child support and spousal supportCouples who have decided to end their marriage will need to address a wide variety of financial issues. During this process, spouses will not only want to make financially advantageous decisions, but they will need to consider how these decisions will affect their taxes. One divorce-related tax issue that may arise involves determining how taxes will apply to child support or spousal support payments made by one party to the other.

Taxes on Support Payments

In the past, child support and spousal support were taxed differently. The person who paid spousal support was able to deduct these payments from their taxable income, and the person who received spousal support was required to report these payments as part of their income and pay taxes on the amount received. Child support was handled differently, with the payor not being allowed to deduct payments, and the payee not reporting payments as income. 

The tax laws changed a few years ago, and for divorces that were completed on January 1, 2019 or later, spousal support and child support are taxed the same. Payors of support cannot deduct payments, and payees are not taxed on the payments they receive. This may make the consideration of tax-related issues during divorce more straightforward. However, those who are currently paying spousal support from a divorce that was finalized before 2019 will still be able to deduct these payments, and they will want to be sure to understand how the decisions they make will affect their taxes going forward.

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San Jose tax law attorney for divorce filing statusEnding your marriage can be a difficult decision, but if you have decided that it is the best choice for you and your family, you will want to make sure you are taking the right steps to begin the next phase of your life on secure financial footing. In addition to addressing matters related to your property, income, and family finances, you will also need to look at your taxes. A variety of divorce-related tax issues may arise, and one of the most important is determining what filing status to use when filing your annual tax returns.

Options for Filing Status for Divorcing Spouses

For the year when your final divorce decree was or will be issued, you will not be able to file taxes jointly with your spouse. That is, if you will be finalizing your divorce in 2021, you and your ex will each be required to file separate 2021 tax returns before the April 15th deadline in 2022. However if you are still legally married on December 31, 2021, you can still file a joint tax return for 2021. 

When choosing a filing status, you generally have three options:

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San Jose tax compliance lawyer for cryptocurrencyThe use of virtual currencies has become more and more widespread in recent years, especially in the Silicon Valley area. Many people and businesses invest in and trade cryptocurrencies and use them to make purchases or pay employees. As financial activity in this area continues to increase, the IRS has taken note, and it is taking steps to make sure taxpayers properly report these transactions and pay applicable taxes on the income they earn and the gains of their investments. Some recent developments have shown that those who own virtual currencies will want to make sure they are meeting the requirements under the tax laws.

IRS Clarifies Reporting Requirements for Virtual Currency

Those who have begun to file their tax returns for 2020 may have noticed that a new question has been added to Form 1040 asking “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” This indicates that the IRS will be monitoring these transactions and taking action to collect taxes that are owed. However, taxpayers have faced some uncertainty about exactly what types of transactions need to be reported. Recently, the IRS offered some clarification by stating that those who purchased cryptocurrencies using “real” currencies do not need to answer “yes” to this question. 

For other types of transactions, virtual currencies are treated as property. When selling or exchanging cryptocurrencies, a taxpayer will need to recognize any capital gains or losses based on their basis in the cryptocurrency (the amount paid to acquire it, including fees or commissions) and the amount they received in exchange for the virtual currency. Those who receive cryptocurrency as wages or as payment for services must treat the virtual currency as income based on its fair market value at the time it was received.

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San Jose, CA tax law attorney for IRS installment agreementsCompliance with tax laws is a requirement for people and businesses in the United States, but some taxpayers may struggle to pay the taxes they owe. A person who has unpaid taxes may worry that they will be subject to collection actions by the Internal Revenue Service (IRS) such as wage garnishment or tax liens. Currently, this is a major concern for those who have experienced financial difficulties due to the COVID-19 pandemic. As part of its ongoing efforts to address these issues, the IRS has given taxpayers more options for paying the taxes they owe through installment agreements.

Installment Agreements Under the Taxpayer Relief Initiative

Taxpayers with outstanding tax liabilities have the option to pay off the amount they owe over time by making regular payments to the IRS. To qualify for an installment agreement, a taxpayer will need to have filed all required tax returns and tax forms. To address the financial issues that many people have experienced due to the COVID-19 crisis, the IRS has created a Taxpayer Relief Initiative that has expanded people’s ability to use installment agreements. The changes made under this program include:

  • While installment agreements had previously been available to individual taxpayers who owed up to $50,000 in taxes, penalties, and interest, this option is now available for certain individual taxpayers who owe up to $250,000. These taxpayers may be able to set up installment agreements without the requirement to provide financial statements verifying their monthly income and without the need for the IRS to file a federal tax lien.
  • The time limit for paying off tax debts through short-term installment agreement plans has been increased from 120 days to 180 days.
  • For taxpayers who have existing installment agreements, the IRS will automatically add certain types of taxes owed in subsequent tax years to their balance rather than causing them to default on their agreement.
  • Taxpayers who use direct debit to make payments in an installment agreement can use the IRS’s Online Payment Agreement system to request changes to their agreement, such as lowering the amount of their payments or changing the payment due dates.

The Taxpayer Relief Initiative also provides several other options for those who owe taxes. In some cases, taxpayers may request that the IRS delay collection of taxes until their financial situation improves. Taxpayers may also be able to negotiate offers in compromise with the IRS to pay taxes owed, or they may qualify for penalty abatement relief if they can show reasonable cause for failure to file tax returns or failure to pay taxes.

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San Jose, CA international tax return compliance lawyerU.S. taxpayers are required to comply with a wide variety of tax laws, but understanding these complex requirements can sometimes be difficult, especially for those who own international assets or earn income from foreign sources. Taxpayers may be required to file multiple different types of forms related to foreign assets, accounts, and income, and those who have not met their foreign investment reporting requirements may be concerned about the possibility that they may face a tax audit and be subject to penalties. Fortunately, the IRS has provided procedures that taxpayers can follow to file delinquent international tax returns.

DIIRS Procedures

The IRS encourages taxpayers to voluntarily comply with its requirements for reporting foreign income and assets and paying any delinquent taxes that are owed. In some cases, taxpayers may be able to participate in the Streamlined Compliance program and use the Streamlined Domestic Offshore Procedures (SDOP) or Streamlined Foreign Offshore Procedures (SFOP) to disclose any unreported foreign assets or income and pay taxes that are owed. Depending on whether a person qualifies for the domestic or foreign procedures, they may also be assessed a penalty.

For those who do not need to use the streamlined compliance procedures to become compliant with their requirements, the IRS offers another program known as the Delinquent International Information Return Submission (DIIRS) Procedures. Taxpayers may qualify for this program if they have not filed one or more international information returns, they are not facing a civil examination or criminal investigation by the IRS, and they have not already been contacted by the IRS about the delinquent forms.

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