John D. Teter Law Offices

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San Jose, CA 95128
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During the COVID-19 pandemic, many individuals, families, and businesses have experienced financial difficulties, and to help avoid additional strain that would affect the national economy, the IRS temporarily suspended some of the activities it usually takes to collect unpaid taxes. However now that the United States is emerging from this national emergency with many businesses reopening and people returning to work, the IRS has stated that it will be resuming its regular collection programs. Taxpayers who are facing tax audits or who have unpaid taxes will need to be aware of the potential types of actions that the IRS may take against them.

IRS Tax Enforcement Operations

san jose tax lawyerAs of June 15, 2021, the IRS has begun to return to its normal practices of collecting taxes. Typically, the IRS sends notices to taxpayers who have tax debts, informing them of the balance that is due. The IRS will be following up with those who have not responded to these notices. Those who have tax liabilities from tax returns filed for 2019 or 2020 are required to respond to notices from the IRS within 30 days, either by paying the amount due or requesting an offer in compromise or other forms of relief. This window is extended to 45 days for those who reside outside the United States. Beginning August 15, 2021, anyone who has failed to respond to a notice from the IRS may be subject to tax liens or levies.

Other tax levy programs will resume on July 15, 2021, including:

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san jose tax lawyerThe coronavirus pandemic has affected many people’s finances, but fortunately, different forms of relief have been made available from federal and state governments. While this has provided many people with benefits allowing them to meet their financial needs, it may also complicate certain matters. Couples who are going through a divorce will need to determine how COVID-19 relief may affect them, including whether they will be able to receive stimulus payments and claim tax credits. When addressing issues related to divorce and taxes, it is important to work with an attorney who can explain the laws and ensure that the decisions made are financially beneficial.

COVID-19 Stimulus Payments and Tax Credits 

Most people received multiple stimulus payments in 2020 and 2021 that were meant to address the ways that the COVID-19 has affected the national economy. These payments were treated as “recovery rebates,” and they functioned as a prepayment for tax credits that could be claimed when filing an annual tax return. The initial stimulus payment for individuals with an income of $75,000 or less was $1,200, and married couples who earn less than $150,000 received $2,400. Families were also able to receive a stimulus payment of $500 for each dependent child. Additional stimulus payments of $600 per individual were sent out in December 2020 and January 2021, and a third stimulus payment of $1,400 per individual, plus up to $1,400 per child, was sent in March 2021.

Couples who got divorced in 2020 or 2021 or who are currently involved in the divorce process may need to address issues related to these stimulus payments and tax credits. Typically, stimulus payments received while a couple was married are considered marital property, and they will need to be included in the property division process. If any stimulus payments were not received, they may be claimed as credits on a tax return, and a couple’s divorce decree may specify whether a spouse may be able to claim these credits or whether they will divide tax refunds for 2020 or 2021.

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san jose tax attorneyDivorcing couples often need to address complex financial issues, especially if they will be dividing multiple types of property, assets, and debts. In addition to determining how they can divide all of their marital property fairly and equitably, couples will also need to understand how the decisions they make will affect their tax obligations. When addressing issues related to divorce and taxes, including gift taxes, it is important to work with an attorney who understands how tax laws apply to property settlements.

Divorce Settlements and Non-Taxable Gifts

When a person makes a gift of money or property to someone else, gift taxes may apply, and a gift tax return may need to be filed. However, in most cases, transfers of property between spouses either before or after their divorce are exempt from gift taxes. Typically, these transfers will be considered non-taxable gifts if they fall into one of the following categories:

  • Property transfers that are ordered in a divorce decree, including property settlements made before completing a divorce that were incorporated into a divorce decree.
  • Property transfers made through a written agreement between the parties, including transfers meant to provide financial support for the couple’s children. These types of transfers must take place within 1 year before or 2 years after the date the agreement was executed.
  • Property transfers made to settle marital support rights, such as a monetary lump sum paid in return for a waiver of the obligation to provide spousal support. Gift taxes will not apply to these transfers so long as the amount of money or property transferred is not larger than the value of the spousal support rights.
  • Property transfers made before the finalization of a divorce that qualify for the marital deduction. This deduction allows spouses to transfer property to each other without being subject to gift taxes. However, this deduction does not apply to certain types of transfers, including transfers of some types of interests in trusts, as well as transfers to a spouse who is not a U.S. citizen.
  • Property transfers that qualify for the annual gift tax exclusion. As of 2021, a person may exclude gifts to another person totaling up to $15,000 each year. For property transfers to a non-U.S. citizen spouse, the annual exclusion is $157,000.
  • Property transfers involving direct payments for medical care or tuition made on behalf of a person’s former spouse.

Contact Our San Jose Tax Law Attorney for Gift Taxes and Divorce

Even though most divorce cases will not involve gift taxes, spouses will want to be sure to understand how the decisions they make about property division will affect their tax obligations. At John D. Teter Law Offices, we can review a proposed divorce settlement and identify any tax issues that may affect you, and we will advise you on the best ways to avoid paying unnecessary taxes or address outstanding tax debts. For legal help with divorce-related tax issues, contact our San Jose, CA tax lawyer at 408-866-1810.

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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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