Over the years, we continue to see more and more clients where we uncover hidden finances or issues in their taxes. We are not tax experts, but instead work with our client’s tax expert to help better understand the items that are hiding in plain sight. Here are a few of the biggest issues we have seen and found:
1. Hidden Assets. On occasion, we have clients who are concerned about hidden assets during their divorce. While we are not financial investigators, we can take a dive into the statements and taxes to find things otherwise hidden. For instance, we had a client whose Husband indicated he did not have any retirement accounts. Yet his distributions for said retirement accounts were listed in his taxes. Or the Wife that said she didn’t own a business, but her business tax returns said otherwise. Or the spouse that had taken the entire tax refund for themselves, hiding away the other spouse’s portion. Often, things can be found in plain sight.
2. Lack of Tax Payments. Whether it is the spouse that said they had filed the taxes for the last 20 years and never did, or the spouse refusing to file taxes to hide assets, a lack of tax payments can happen frequently. Often, one spouse is responsible for the taxes and the other simply hands over their W2 forms. But this can have a negative impact on the unknowing spouse if the taxes are never filed or interest/penalties continue to accrue without them knowing. Often, many clients aren’t even aware of what they need to pay. For instance, a client sold rental properties and hadn’t considered the tax implications. This was a large tax big that we caught and helped them account for in their division of assets and debts, and we helped them connect with the CPA to pay it in a timely manner and avoid penalties.
3. Long-term Agreements. While you can avoid paying some taxes when making payments from one spouse to another during a divorce, it must be drafted and understood properly. Depending on how it is drafted, this tax benefit may run out after 7 years and then taxes start kicking in. If you have long-term agreements with your spouse for payments, such as a buyout, it is critical that such an agreement is drafted with an eye for tax implications.
4. Real Estate Taxes. We are often surprised to find the little consideration for taxes surrounding real estate. From capital gains taxes to depreciation taxes, the value of a property can be drastically depleted by the taxes dependent on the circumstances. Questions I’m always reviewing with my clients include: tax estimates from their CPAs, how long they have owned a property, whether it is their personal residence or a rental/investment property, how much they purchased the home for and its current value. These questions help us better understand what tax implications may need to be considered.
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