Tax CPE Covering Issues Related to Divorce
After following the counsel of a legal advisor, newly divorced individuals greatly benefit from professional advice about tax matters. They are certain to encounter new issues related to preparation of their tax returns. Reaching out to these people with your tax expertise makes them aware of the high status possessed by enrolled agents.
Firstly, divorced taxpayers have a new filing status for their tax returns. They file either as single or head of household. Determining qualifications for head of household is a basic matter addressed in enrolled agent continuing education.
A divorced person also may possess income-producing property that was previously administered by the former spouse. Therefore, the correct tax treatment is unfamiliar to them. One such situation is an assignment of a royalty interest. Completion of your enrolled agent CPE gives you more information about tax deductions against this type of income than the general public is able to master.
Another type of unfamiliar property that a spouse may have received in a divorce is a note receivable. Calculating the income from an installment sale requires knowing a few details about the original transaction. By helping a spouse gather this information at the time of divorce, you can assure no complications in determining future tax impact.
One of the basic factors covered in an enrolled agent course is that transfers of property or money related to a divorce do not have an income tax impact. The only exception is when the payments are alimony. Recipients of alimony report the amounts as taxable income. Payers of alimony receive a tax deduction for their payments.
Therefore, knowing what situations are considered alimony is an important tax decision when helping divorced individuals. Only cash payments qualify for alimony. Transfers of property are never considered. Payments under a written separation agreement between spouses also qualify for alimony treatment.
Child support payments are not alimony. A combined payment of both must be separated for tax purposes. If a partial payment is made, it is applied first to satisfying child support before considering any portion as alimony.
You might have to use your enrolled agent expertise to determine if some payments unintentionally comprise alimony. This happens when a cash payment is made between spouses who live apart, file separate tax returns, and don’t have an agreement calling the payment child support or specifically not alimony. In such cases there must be no obligation to make the payment after the recipient’s death.
You encounter many ways to utilize your tax CPE when helping divorced individuals. By knowing how to advise these people, you gain their trust for future preparation of tax returns. In unusual cases, your status as an enrolled agent provides you with authority to represent a taxpayer in defending how some payments were determined as alimony. An even better arrangement is to separately provide tax services to both former spouses.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.