Why the timing of filing taxes in Texas is so important
With the deadline to file your income taxes coming up on April 15th, I thought it would be a good idea to walk through some of the basics when it comes to how your taxes can interact with your divorce. It is your responsibility to determine whether you have to pay taxes each year by completing a tax return based on income earned in the prior year. Depending upon several circumstances you may not be liable to pay taxes. You may be in line to receive a refund. However, the only way to determine this is to take the time to figure out your tax obligation, if any.
You can do this in several ways. The old-fashioned way is to find a “1040” worksheet, put pen to paper and figure out your income, credits, deductions, and anything else that may be relevant to your situation. You can determine your tax obligation or refund in this manner. There are online tax preparation websites that you can use. There are commercial tax preparers seemingly in every strip center in Houston. Finally, you can pay to have a CPA or other tax professionals do your taxes for a fee. Whatever you decide to do it is the law that you file a tax return by April 15th of each year. This does not mean that you have to pay your tax obligation, if any, by that date. However, a return must be filed.
A situation that one of our experienced family law attorneys with the Law Office of Bryan Fagan just ran into involved a client who had not filed nor paid his income taxes in many years. With a divorce already having been filed earlier this year he was concerned about how his failure to pay taxes would impact his case. So, he came to speak to his attorney who advised him that it would be a great idea to file taxes for any years that he has not already done so. Remember- it’s the law that you must file a tax return each year. His wife had filed her taxes as a married filing separate designation under this scenario. She had been able to file her taxes, but he had not filed.
What our client was left wondering was what to do here. He knew that he had to file taxes sooner rather than later. The last thing he wanted was for the IRS to come down on him as far as having to pay multiple years of taxes, penalties, and everything else. He anticipated some blowback from the IRS as far as penalties and late filing fees but with some planning, he wanted to avoid the worst of that fate. He had the same plan that a reasonable person may come up with file your past due tax returns as soon as possible and then pay whatever you need to before the fees rack up any higher.
Meeting with your attorney’s face-to-face has many benefits
Our attorney took one look at the plan and said he understood where the client was coming from but that he had a better idea. See, this is where an attorney with the Law Office of Bryan Fagan differs from most other family attorneys in Houston. Most other attorneys would respond via email to a question that you had for him or her. He would fire off an email on the way home or while he was waiting for another hearing to begin inside the courtroom. The lawyer would give the situation a couple of seconds of thought and then make a pronouncement via email that could potentially alter the case and your near-term future, at least financially speaking.
That is not what our attorneys do. Sure, we work hard to get things done for our clients, but we do it in a way where we give every client and every situation in which our clients are involved a great deal of thought. After coming into our office to meet with his attorney, this client received some well-thought-out and sensible advice about how to proceed given the tax implications of this decision. The first reaction of any of may have to the situation is to immediately file and then pay as much in the way of back taxes as possible. That way the IRS may keep off your back long enough to help buy you some time to work out a payment plan, take out a loan, or do whatever else needs to be done to pay the remainder of that tax obligation. Nobody wants the IRS on their back. This is especially true when you consider that this gentleman owed many years’ worth of back taxes.
The advice that his attorney provided him was to file the back taxes but wait on the payment portion. Wouldn’t the fees and penalties for failing to pay after all these years start to be a huge burden, the gentleman wondered. Our attorney acknowledged this as a valid concern but pointed out that a few extra months of fees or penalties after waiting a decade to pay taxes would not make much of a difference. However, what could make a huge difference in his divorce was this money could be paid out of his community estate rather than his money separately which he had to wait until after the divorce was already complete.
The attorney advised this gentleman to calculate what was owed and to make that a line item in the division of his community property estate. The tax burden would be counted like any other debt in the divorce. It would need to be paid by one spouse out of the community property funds. Since his income was counted amongst the other community property then surely the income taxes should be paid with community property, the attorney reasoned. This made sense to our client, and they worked out a plan to get the taxes completed and figure out how much money would be owed. That sum could be thrown into the middle of the table, so to speak, and divided between the two spouses.
This was extremely important advice at the exact moment in time that the gentleman needed it. This is not a situation that a family law attorney runs into every day. There are tax questions and issues in a divorce, to be sure, but they are usually not ones that are as extreme as this one. With that said, our attorney was happy to be able to give the advice that he did at that moment right when his client needed the word of wisdom. It potentially saved him thousands of dollars and gave him peace of mind as well. All in all, the client was appreciative and received the right advice at the exact right time.
With any issue having to do with taxes, the Law Office of Bryan Fagan wants you to be aware that nothing in this blog post should be taken as tax advice or counsel. Our attorneys practice family law and are not tax attorneys or tax preparation experts. As a result, we would recommend that you speak with an experienced tax professional before making any decision to file, prepare or pay taxes. There are tax credit questions that come up in a divorce that you can speak to your attorney about but specific tax advice would need to be sought elsewhere. We shared this story with you since it illustrates the sort of candid, honest, and well-informed advice that you can receive from an attorney with the Law Office of Bryan Fagan. Please contact us today to schedule a free-of-charge consultation with one of our licensed family law attorneys.
What do you need to know about community property and taxes?
The community property laws of Texas will impact how you figure out your income when you are filing your federal income tax return each year. Whether you live in Texas, are married, and file separately from your spouse are other factors that will be relevant to consider for tax purposes. For instance, if you are married then you will usually pay less in taxes than if you were married filing jointly and even less than if you were married filing separately.
Let’s say that you are planning to file your tax return separately from your spouse. In that case, you need to report half of all your community income and all of your separate income on your tax return. Most people who have been married for a fairly long period will not have very much separate income to report on their tax return, if any. Community property is a property that you, your spouse, or you both acquire during your marriage. Additionally, if you and your spouse have completed a marital property or pre-marital property agreement then there may be a property that used to be a separate property that was converted to community property.
Community income would be income from Community property sources. This would include salaries, wages, tips, and other forms of payment received for services that were performed by you and your spouse during your marriage. Additionally, if you own any real estate that is classified as Community property then any income earned from that Community property would also be counted as community income. It is useful to go back and determine when the property was purchased or acquired to determine whether or not it should be counted as a community or separate property.
Additionally, both you and your spouse likely own separate properties. The separate property would be a property that you or your spouse owned separately before your marriage. Additionally, you could also acquire separate property during your marriage if the property was a gift to you or inherited by you. You could also have used the separate income to purchase property and therefore that property would be properly classified as separate property. Please note that in Texas most income that is earned from separate property is community income.
It is a good idea to update your W2 form with your employer to claim the proper withholding for tax purposes. An issue that you may need to investigate is whether any spousal maintenance or contractual alimony that you received needs to be counted as income on your taxes. In that case, filing a quarterly return could also be required.
Whichever parent of your child is the primary conservator would be the parent who can claim their child on their tax return for the child tax credit. If you and your co-parent split custody of your child, then there are ways to determine which parent will be able to claim the credit on their taxes. A family court judge in Texas is not able to issue orders regarding the federal child tax credit.
What about filing taxes as a single adult after your divorce?
Even though it may not feel like it now, your divorce will eventually come to an end. At that point, you will be required to file taxes for the subsequent year. As a result, it would be helpful to learn how to file taxes in a way that is the most advantageous for you and you. The standard deduction is what most of us take unless we take the time to itemize our deductions. As a result, a single person may be able to file as head of household and receive a larger standard deduction than would have been available as filing married filing jointly.
The next area where you should place some emphasis as a newly single adult is what you will be able to do as far as filing taxes with your child as a dependent. We have already mentioned how the child tax credit may be something that your child qualifies for under your tax return. This credit was worth $2000 in 2022. Every little bit helps when it comes to paying taxes. You are not going to get out from underneath the burden of your divorce in one fell swoop. Rather, it would be a good idea to take advantage of every money-saving mechanism that comes your way during the divorce. There will not be many of them but anyway that you can save money on would be to your advantage.
In any event, you can treat taxes as another financial obligation that you are responsible to take care of both during and after your divorce. It is not enough to simply pay Service to this subject and focus on other areas that interest you more. While taxes are far from the most fascinating subject that you will ever come across, they are still important. While your attorney will do their best to help you maximize your divorce for all areas of your life there is no telling how the divorce will play out when it comes to taxes unless you pay close attention to the details. Taxes can be complicated so having professional help to advise you on these subjects is critical. You may even be able to find help for free in your area. This is especially true during this time of year.
Taxes can be prepared using software, websites, pen, and paper as well as the assistance of a tax professional. No matter how you choose to do your taxes you must file a return no matter if you plan on paying those taxes this year. Remember what we mentioned at the beginning of today’s blog post: it’s the law that you must file a return each year, it is not the law that you pay your taxes in full on April 15th. Filing a tax return and not paying your tax bill is better than doing neither.
Another point to make regarding taxes and your divorce is that you should make sure to try and negotiate regarding the child tax credit with your spouse. This is not a huge negotiating point given that the credit is only worth $2000. However, we have already talked about how every dollar helps and a $2000 credit is far from peanuts. If you do not negotiate on this a judge cannot issue orders on a federal tax credit. So, be sure not to waste the opportunity in your divorce. This is an issue that can be brought before the IRS, but it is easier just to have it decided in your divorce.
As always, if you want to be as prepared as you can for your divorce regarding taxes or any other subject then you should reach out to the attorneys with the Law Office of Bryan Fagan. We pride ourselves on helping people with their divorces in a way that helps them now and in the future.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free-of-charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas family law as well as how your family’s circumstances may be impacted by the filing of a divorce or child custody case.