Friday, January 10, 2014

Communication key for estranged couples during tax time

Tim Grant / Pittsburgh Post-Gazette writes: Tax time can be one of the worse times for estranged couples to shut down lines of communication.  Divorce financial analyst Lisa Turbeville said she is working with a separated couple who could face an audit by the IRS because there were so many discrepancies in their separate tax returns.

The wife reported alimony income on her tax return that was equal to the amount deducted for her from the husband's pay. The husband claimed on his federal tax return to be supplying a higher amount of support, including car insurance bills and other legitimate forms of support he provided for his wife.
"The mismatched numbers are going to flag the IRS and it's all because they didn't communicate with each other before filing their tax returns," said Ms. Turbeville, who works for Watermark Financial based in Mt. Lebanon. "Generally, the IRS won't pick that up for two or three years. But eventually they will."
It's an issue that could affect a significant number of people.
According to Allegheny County court records, divorces since 2007 have averaged about 2,700 a year. Nationally, divorce rates have held relatively steady. According to the Centers for Disease Control and Prevention, the rate was 3.6 per 1,000 people in 2011, the latest information available.
Couples who are separated and going through a divorce are usually facing enough emotional and financial upheaval without receiving unwanted attention from the IRS and an unexpected tax bill on top of everything else. But when estranged couples fail to communicate with each other during tax time it could potentially lead to both parents claiming the same child for a dependency exemption or misreporting alimony payments. Both also might claim the same deduction for taxes or interest on the home or medical expenses.
"Unfortunately, too many times I've seen this when working with separated and divorced taxpayers," said Alex Kindler, a partner at Horovitz Rudoy & Roteman accounting firm, Downtown. He, like other advisers, encouraged the parties to talk more, even if it isn't always comfortable to do so.
"Since a child can only be claimed on one tax return, miscommunication or misunderstanding of the tax rules can lead to two people both claiming the same dependent," he said. "The IRS almost always will detect a duplicate Social Security number, and correspondence will follow."
Sometimes the rules are confusing, too.
Child support is not deductible for the person who pays it and not taxable to the person who receives it. For payments to qualify as alimony, Mr. Kindler said, documentation such as a separation or support agreement or court order is required.
Nan Cohen, an O'Hara-based divorce expert, agreed that the biggest problem with divorcing couples and tax issues is communication.
She recently had a case where a divorced father claimed all five of his children as dependents on his tax return without telling the mother of the children. Now both of them must redo their 2012 tax returns.
"I honestly don't think it's malicious," Ms. Cohen said. "Most times people don't understand what they've agreed to and fail to talk to each other. Rather than speak to each other, they play it by ear and it backfires."


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