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Checklist and pen When a joint investment account is divided, the financial institute will use only one Social Security number to report the earnings and thus only one 1099 will be issued for that account. For example, following their divorce, Dick and Jane divided their joint investment account and transferred their own share into an individual investment account solely in their own name, on November 1st. If the “primary” Social Security number on the joint account is Dick’s, he will receive one 1099 for the joint account earnings earned from January 1st– October 31st and a second 1099 for the individual account earnings earned on his individual account from November 1st – December 31st. And, Jane will receive only one 1099 for the individual account earnings earned on her individual account from November 1st – December 31st. If the goal is to share the tax liability for the joint investment account earnings, this can be accomplished in a few ways.
  • The tax liability is projected during the divorce process and an adjustment is worked into the property division.
  • The spouse who received the 1099 adds the investment income to their tax return and language is added to the decree outlining the agreement on how to share the tax liability at tax filing time.
  • The spouse who received the 1099 can “nominee”the correct portion of investment income to the other spouse by filing a 1099 and 1096 with the IRS and furnishing a 1099 to the other spouse.
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116029268-charity-donation-form-gettyimagesThe holiday season is when many people do a significant portion of their charitable giving for the year. Once you have decided which charitable organization to support and how much, you should also consider how to give that support. What I am getting at is that you can be charitable and tax-savvy by donating highly appreciated stock. Donating a highly appreciated stock or mutual fund is a great strategy for getting rid of an investment that you have been holding because you do not want to pay the capital gains tax. The beauty of donating “in-kind” some or all of a security holding is that you get the full charitable deduction without paying the capital gains tax. “In-kind” means that the investment is not sold, but is transferred as-is to the charity instead. This way you do not have to pay the capital gains tax, because you did not sell the investment. The charity will likely sell the investment to meet their funding needs, but as a non-profit organization, they pay no tax on the sale. The catch is that you have to have owned highly appreciated investment for more than one year. If you transfer an investment that you have owned for less than one year, you can only deduct your original cost in the investment and not the appreciation! Of course this strategy is a bit more complicated than writing a check. You will need to obtain account information from the charity as to where to transfer the highly appreciated investment. You will then need to contact you investment broker and direct them to transfer the investment to the charity’s account. It is not difficult though; most charities are more than happy to help and it is something that investment brokers handle for their client on a regular basis. The transfer has to occur by December 31st to qualify as a current year contribution. You cannot donate investments that have lost value and deduct their higher original cost. If your donation totals more than $250, the donation must be recorded – meaning that the charity must send you a written statement describing the donation and its value. You or your tax preparer will also need to fill out and include Form 8283 Noncash Charitable Contributions in your tax return, listing information about the charity and investment contributed. Despite the extra work, donating highly appreciated stocks or mutual funds can be a win-win for you and the charity. This holiday season think about sharing some of your investment success with your favorite charity instead of with the IRS in April.  
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116029268-charity-donation-form-gettyimagesThe holiday season is when many people do a significant portion of their charitable giving for the year. Once you have decided which charitable organization to support and how much, you should also consider how to give that support. What I am getting at is that you can be charitable and tax-savvy by donating highly appreciated stock. Donating a highly appreciated stock or mutual fund is a great strategy for getting rid of an investment that you have been holding because you do not want to pay the capital gains tax. The beauty of donating “in-kind” some or all of a security holding is that you get the full charitable deduction without paying the capital gains tax. “In-kind” means that the investment is not sold, but is transferred as-is to the charity instead. This way you do not have to pay the capital gains tax, because you did not sell the investment. The charity will likely sell the investment to meet their funding needs, but as a non-profit organization, they pay no tax on the sale. The catch is that you have to have owned highly appreciated investment for more than one year. If you transfer an investment that you have owned for less than one year, you can only deduct your original cost in the investment and not the appreciation! Of course this strategy is a bit more complicated than writing a check. You will need to obtain account information from the charity as to where to transfer the highly appreciated investment. You will then need to contact you investment broker and direct them to transfer the investment to the charity’s account. It is not difficult though; most charities are more than happy to help and it is something that investment brokers handle for their client on a regular basis. The transfer has to occur by December 31st to qualify as a current year contribution. You cannot donate investments that have lost value and deduct their higher original cost. If your donation totals more than $250, the donation must be recorded – meaning that the charity must send you a written statement describing the donation and its value. You or your tax preparer will also need to fill out and include Form 8283 Noncash Charitable Contributions in your tax return, listing information about the charity and investment contributed. Despite the extra work, donating highly appreciated stocks or mutual funds can be a win-win for you and the charity. This holiday season think about sharing some of your investment success with your favorite charity instead of with the IRS in April.
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During and after a divorce, tax matters take on new importance since your financial circumstances have probably changed, as has your filing status. If you were in charge of tax returns during your marriage — and especially if you were not — keep these tips in mind to support the best possible outcome when filing your annual returns. Some legal fees are deductible. While most court costs and legal fees for obtaining a divorce are not deductible, some are, including:
  • Fees paid for tax advice related to a divorce
  • Fees paid to determine or collect spousal maintenance
  • Fees paid to determine estate tax consequences of a property settlement
  • Fees paid to professionals if the services were completed to verify the accurate amount of tax or to assist in obtaining spousal maintenance (appraiser, actuary, etc.)
These deductible costs are usually claimed as a miscellaneous itemized deduction on Schedule A of your income tax forms, but are subject to the 2 percent of adjusted gross income floor.  Talk to your tax advisor to see if you qualify. You may be held liable for past unfiled joint tax returns or audited returns. Even if you were not involved in the preparation of your taxes during your marriage, you may still be held liable for unfiled returns or inaccurate returns. You can request copies of past federal and Minnesota state tax returns from your tax advisor or from the IRS and Minnesota Department of Revenue (Federal Form 4506-T and Minnesota Form M100). Plan ahead for filing of future tax returns. Your marital status on December 31 of a calendar year determines your filing status for that year. If you were married most of the year, but your divorce is finalized on December 31, you cannot file as married joint, but would instead file as either head of household or single. If you are in the process of getting divorced, consider working with your spouse, your attorney and a tax professional to determine which filing status would best suit your financial situation. Also, keep in mind during the divorce process that it helps to spell out the following in the divorce decree:
  • Who will itemize mortgage interest, real estate tax, charitable contributions and other itemized deductions?
  • Who will claim any dependent children’s exemption and tax credit?
  • Who will take any long-term capital loss carryover?
  • Who will claim any quarterly estimated tax payments made during the year?
  • Who will report investment income from joint accounts?
 If this is not clearly spelled out in your divorce decree, consult with your tax professional or attorney for guidance. Review your tax situation to determine withholding, estimated tax payments, cost basis of assets and taxable retirement benefit distributions. Your W-4 withholding may need adjustment after your divorce to ensure that enough tax is deducted from your wages — or less tax, depending on your situation. You should also determine if you need to make additional estimated quarterly tax payments to cover spousal maintenance or personal investment income (which does not have taxes withheld like wages). You’ll need to know the cost basis of your personal investments, real estate and any life insurance with a cash value. If you sell these assets in the future, the cost basis will determine if you have taxable income from the sale. Finally, if you take a distribution from a retirement account during the divorce process, you may have to pay taxes on that income. Plan ahead for your taxes during the divorce process and prior to filing that first post-divorce return. You’ll reduce the time, cost and potential frustration of this necessary part of your new life.