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Divorce

03/18/2015

Divorce, Death, Benefits and Taxes

The emotional stress and damage of divorce can have even more lasting consequences if personal finances and assets are not updated to reflect your changed situation.

It’s particularly important to address what will happen after your death, when certain assets and benefits may unintentionally be passed to your former spouse or his or her family.

Divorce-money-fightFor example, a current New York court case involving the assets of a woman who died at age 43 has now reached that state’s appellate court.  The woman’s family is battling her former in-laws who stand to inherit her home that her family has owned for generations, all because she did not update her will.  New York divorce laws automatically prevent her ex-husband from inheriting the property, but her secondary beneficiaries remain her ex-in-laws; so they are fighting over the property now.

It may be emotionally difficult to address your financial assets in the midst of divorce, but if you are going through a divorce or have even been divorced several years, it will pay off in the long run for you and your family to review and update your financial documents.

Be sure you have updated your estate plans, check insurance and other beneficiary designations and beneficiary deeds.  Also provide your loved ones with copies of the updated documents, or let them know where to find them.  Divorcing couples should also consider individually seeking a new financial adviser to avoid any conflicts of interest. 

Make certain your will clearly states your intentions, and that your powers of attorney, health-care proxy, and beneficiary designations on IRAs, insurance policies, bank accounts, brokerage accounts, and annuities name the people that you wish.  Remember, no matter what a will says, these financial accounts and policies will pass to the individuals named on them, so having updated directives for each account is extremely important.

As we have detailed in our blog IRAs Need Updated Beneficiary Forms, changes in beneficiaries for annuities and IRAs must be submitted in writing and require a signed and dated document be sent to the financial institution handling the account or policy.

For some accounts, the original financial agreements stipulate the ex-spouse cannot be removed as a beneficiary, so the beneficiary may want to take steps to clarify the arrangements to ensure his or her name remains on the account.

When a divorce is final, the final divorce decree may be sent to the plan administrator directing how money in IRA accounts should be divided and transferred into separate accounts.  Company-sponsored qualified retirement plans will need additional steps.  In those cases, the court must issue a Qualified Domestic Relations Order (QDRO) properly apportioning retirement plan assets between the former spouses.

However you wish to change your beneficiary status or account information, it’s also a good idea to request a written confirmation notice from your insurance company, financial planner and/or banker confirming they have received and acted on your changes.  Then, keep all the updated documents in a secure location that can be found in the event that you may become incapacitated or die.

Divorce may also affect a person’s current and future income tax obligation, and may affect future taxes owed on assets and retirement accounts.  Receiving or paying alimony payments or child support may also have tax consequences.

Divorce is painful.  Planning your next steps both personally and financially can help ease concerns as time passes.

Consider meeting with a McRuer CPAs expert who will help you identify and act upon the best financial strategy to help you now and in the years ahead.  Contact us online or call 816.741.7882 for a consultation.

02/19/2015

Tax Software vs Professional Accountants

As we enter into the peak of tax preparation season, we are often asked about the difference between using tax preparation software and using the services of a professional accountant.  Today there are dozens of preparation software options online and in software packages that can help a taxpayer complete their tax return.  This as today's tax liabilities and concerns are growing more complicated than they've ever been. 

1040 form with glasses and penniesA recent Wall Street Journal article revealed as taxpayers try out new tax software tools, they are making more and more mistakes.  Often, it has to do with not knowing the right questions to ask to discover their best options.  Many times, incorrectly entered numbers cause automatic equations to produce the wrong totals.  

Don't misunderstand, there are good reasons to choose tax software to help you complete your income tax return on your own.  There are also good reasons to choose a professional accountant.  We came across an interesting and concise article online on Investopedia that explains your options clearly.

Here is that article for your consideration as you choose the best steps to take regarding the preparation of your federal and state income tax returns. 

Tax Software Vs. An Accountant: Which Is Right For You?    By Jason Steele | Updated January 29, 2014

""With every important job comes the question of whether or not individuals should do it themselves or hire a professional. While the ever-improving selection of tax preparation software certainly makes it easier to do your own taxes, it has hardly put Certified Public Accountants (CPAs) and other personal tax preparers out of business. 

The Advantages of Using Tax Software
Price
There is no way around the fact that you will pay less for a software package than you will to hire a CPA or another qualified tax professional. The price of tax preparation software ranges from the $10 to $120 range to websites that offer the service for free. On the other hand, the least expensive tax preparers will cost at least $100 and a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes. 

The Advantages of Using Tax Software
Price
There is no way around the fact that you will pay less for a software package than you will to hire a CPA or another qualified tax professional. The price of tax preparation software ranges from the $10 to $120 range to websites that offer the service for free. On the other hand, the least expensive tax preparers will cost at least $100 and a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes. 

The Benefits of Hiring a Professional Accountant
Better Software
Accountants pay around $1,000 to $6,000 for their software, which is far more sophisticated than the products sold to consumers. These more advanced programs have the ability to quickly scan your information and organize line items and forms correctly. By automating much of the data entry and organization, there's less chance for human error to hurt your tax return.

Human Touch
Like a good family doctor that knows your medical history, you can develop a relationship with an accountant so that he or she understands your family's financial situation and future goals. According to Wehner, who has been preparing taxes for 45 years, "A tax professional is often able to make valuable tax savings suggestions that a software program just can't anticipate." The value of this advice can easily exceed the additional cost of consulting with a professional. For example, a tax accountant can provide you advice on tax-friendly ways to save for your children's education, or how to reduce taxes on your capital gains.

Accountants Can Answer Your Questions Year Round
As a trusted professional, a good accountant will be able to answer important questions that arise not just during your annual consultation, but at other times during the year.

Calculator help and form 1040A CPA Saves You Time When Handling Complicated Issues
Taxpayers who find themselves at the center of complicated business and investment matters may even have the skill to sort through their taxes on their own, but is it worth their time? A professional tax preparer is so familiar with the system; he or she can quickly and easily accomplish tasks that might take even skilled taxpayers hours of research. For busy non-tax professionals, their time can generally be better spent earning money in their area of expertise. Even if your tax situation is straightforward, hiring a professional will save you the time and stress of doing your taxes.

The Bottom Line
Ultimately, there is no universally correct answer to the question of hiring a tax professional or doing your taxes yourself with software. Your comfort and familiarity with IRS rules will be part of your decision, but the complexity of your finances should be the key deciding factor. Those with a single employer and few investments may save hundreds of dollars by preparing their own taxes, while those with business income or rental properties will find the expense of hiring an accountant to be worth their peace of mind and potential tax saving.""

##  So, as we add one final thought to the article above, consider that the more complicated your taxes are, the more likely you need comprehensive accounting services and an accounting professional to help you make the best decisions. For us at McRuer CPAs, it's all about making certain you pay no more taxes than you owe.

If you have any questions, or would like to review your income tax situation with an accountant, contact us at McRuer CPAs to set up a consultation.  We'll take a look and provide you options so you can make the best choice.  Call us:  816.741.7882 or contact us online.

 

09/23/2014

How Changing Your Name Affects Your Taxes

As we approach the 4th quarter of 2014, it’s a good time to review any unusual life events creating documentation changes that will affect your individual income tax filing.

Name ChangeFor example, if your name or a dependent’s name has changed, you’ll need to take some action before filing a tax return.

A name change must be reported to the Social Security Administration (SSA) before you file your tax return with the IRS. This is important because the name on your tax return must match SSA records or you will receive an IRS notice and any income tax refund may be delayed.

You should file SSA Form SS-5 at an SSA office or by mail if you have been married or divorced and you changed your name, or a dependent experienced a name change (such as an adopted child changes his or her last name).

Along with updating your name on your social security card consider other accounts and licenses that may also need to be changed including your current passport, driver’s license, bank account(s) and financial records, vehicle title and registration, insurance policies, professional licenses, and medical records. Don’t forget you should also notify the postal service.

Contact us at McRuer CPAs to help you file the necessary paperwork and correct tax filing status providing you the correct deductions.

02/17/2012

Claiming a Child as a Dependent

As you gather your records to complete your tax filing for 2011, you may be among the nearly 55% of all taxpayers who will declare a child as a dependent.  Many children today have grandparents, uncles and aunts, step-parents and adoptive parents who are their primary caregiver and who may claim them as a dependent for a bit of tax relief. 

But there are a number of things to consider before making the claim. 

This is especially important if a child splits their time living with parents in different locations.  For you to claim a child on your tax records as a dependent, the IRS requires that child and you to qualify in five key areas called “tests”. 

The 5 tests for a Qualifying Child that you must consider are:

  1. Relationship
  2. Age
  3. Residency
  4. Support
  5. Joint return

But things aren’t as simple as 1-2-3-4-5.  Even the age of the child that you can claim has a few twists.  For example, a child living with you who is under the age of 19 at the end of the year, that is, December 31st, can be claimed as a dependent as long as you have determined that the child is related to you, a permanent resident, receiving primary care from you and/or is not being claimed by someone else on a separate return.  Whew!  If they are a full-time student they may be claimed if they are under the age of 24, but there are particular qualifications that must be met regarding the kind of education the child is enrolled in.

Having a CPA on your side to consider all the information is key to making certain you receive the tax relief you qualify for and pay only the taxes you owe.   For more information, contact us at McRuer CPAs for a consultation. 

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