Are You Getting Divorced? Here’s what You Need to Know About Your Taxes

Divorce opens up a whole new territory of legal, personal, and financial issues. Here are some things to be aware of on the tax front.


Alimony and Child Support


Alimony payments are tax deductible; child support payments are not. On the other hand, amounts received as alimony have to be included in income for tax purposes, while child support can be received tax free.


Dependency Exemption


Typically, the parent who has legal custody of a child has the right to claim the dependency exemption. However, parents can agree otherwise. A custodial parent uses IRS Form 8332 to release the exemption.


Tax Credits


Generally, the parent who claims the child as a dependent also gets the benefit of child-related tax credits, such as the child tax credit and the credit for higher education expenses.


Retirement Plan Benefits


Retirement plan benefits received from the retirement plan of a former spouse under a court-issued document called a “qualified domestic relations order” are taxable to the recipient.


Personal Residence


Gain from the sale of a principal residence is not taxable if certain requirements are met. The tax-free ceiling is $500,000 of gain for a married couple and half that amount for a single person.


To learn more about tax rules and regulations and divorce, give us a call today. Our knowledgeable and trained staff is here to help.


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Do You Need to Purchase Rental Car Insurance?

It’s the same old story: You’re at the booth ready to sign for your rental car when the agent asks if you want to buy the insurance offered by the rental company. While many of the luxury cars rental companies include it in their auto insurance when they provide you the car, not all rental companies follow this ethic. Before you accept or decline, here on are a few things to consider.


Are you already covered? Check with your auto insurance provider. The best providers out there like already account for and provide collision and comprehensive coverage to be included in your policy. If so, you’ll be covered for damages to a rental car and other property. Keep in mind, though, that if you have to file a claim, it could result in higher premiums.

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Did you charge it? Charging the rental to a major credit card may mean you’re protected by a loss damage waiver. Check with the card issuer to find out what protection, if any, is available.


If your rental car won’t be covered through these channels, you may want to consider saying “yes” when the rental agent asks about insurance.

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What is the Tax Benefit of Your Charitable Gifts

’Tis the season for charitable giving. Nonprofits generally send out appeals this time of year in the hope that people will (a) feel charitable around the holidays and (b) want to make a contribution before the tax year ends on December 31.


If you plan to make a donation, review the following so you don’t miss out on the charitable contribution tax deduction.


  • The charitable contribution deduction is available only if you itemize deductions on your return.


  • Assuming all requirements are met, donations to qualified organizations are deductible on your tax return if you charge them on your credit card or mail the checks by December 31.


  • You must be able to substantiate your donations for tax purposes. For monetary gifts, you need a written acknowledgment from the charity or a bank record that shows the name of the charity, the amount donated, and the date.


  • If you receive a benefit from the organization (dinner at a fundraising event, for example) in exchange for a contribution of more than $75, the charity must provide a written statement indicating the actual value of the benefit. You’re generally required to subtract that value from the amount you contributed to figure your deduction.


  • When you make a single donation of $250 or more, you need a written acknowledgment from the charity indicating how much cash you contributed and/or a description of any property you gave.


  • If the amount of your deduction for all noncash gifts is more than $500, you’ll need to file Form 8283 (Noncash Charitable Contributions). A gift of property valued at over $5,000 generally requires a professional appraisal. (Additional rules apply.)


  • If your charitable gift is serving as a volunteer, the value of your time is not deductible. However, out-of-pocket costs related to your services may be. Keep reliable records so you can substantiate expenditures.


To learn more about tax rules and regulations for charity donations, give us a call today. Our knowledgeable and trained staff is here to help.


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Tax Issues when You get Divorced

When a couple divorces or separates, there are many issues that need to be sorted out. One issue many forget to discuss is taxes. Here is a look at some of the tax issues divorcing couples may encounter.

File Jointly or Separately?

For tax purposes, a person’s marital status is determined on the last day of the tax year, so individuals who separate (but don’t divorce) during the year typically will need to make a choice between filing jointly or separately.

Filing separately may result in the loss of valuable tax credits and deductions. For example, the American Opportunity Tax Credit (for higher education costs) is not available to a married taxpayer who files a separate return. Typically, filing jointly will result in the lowest overall tax.

One reason to consider filing separately is for protection from the other spouse’s future tax liabilities. Generally, spouses who sign joint returns have joint and several liability — meaning that they are each fully liable for unpaid tax liabilities arising out of the return. Moreover, the IRS has the right to pursue the party who is best able to pay the full amount quickly, leaving issues of fairness to be worked out between the two filers. (The “innocent spouse” rules and/or the “separate liability” election may provide protection in some circumstances.)

Alimony Versus Child Support

Alimony represents taxable income to the recipient and a tax deduction for the person paying it. Child support, on the other hand, is not taxed to the recipient, and the person paying the child support gets no deduction for the payments. Because the tax consequences are so significant, a number of technical rules govern what constitutes alimony.

Generally, alimony must be paid in cash (or by check) pursuant to a divorce or separation agreement and terminate upon the death of the recipient. Some people — in the divorce decree or settlement agreement — try to “front-load” their alimony payments by designating payments in the early years as alimony rather than as child support. The IRS has specific rules limiting front-loading.

Property Transfers

Spouses should take care when dividing up assets. The general rule is that no gain or loss is recognized for property transfers if they occur either within one year of the end of the marriage or within six years of the end of the marriage and pursuant to a divorce or separation instrument. However, such transfers may create tax issues down the road, because when the property is sold, the owner may have to pay capital gains tax on the difference between the sale price and the basis (generally, the original cost). As a result, it’s important to consider potential future taxes when negotiating a property settlement.

Child-related Tax Breaks

Only one parent may claim the dependency exemption for a child. Generally, the dependency exemption will go to the parent with physical custody, although numerous subsidiary rules may apply. The rules for claiming the child tax credit generally track those for the dependency exemption. And the general rule for the child and dependent care credit is that the credit will go to the parent with physical custody.

Connect with our team today for all the latest and most current tax rules and regulations.

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Don’t Forget Your Taxes when You Split Your Assets in a Divorce

Divorcing couples should pay close attention to tax issues, even if spouses are in complete agreement about how to divide their assets. Failing to take taxes into account may leave one spouse with a smaller net share than anticipated. To make all this process simpler just like how people can now file to a social security office in Omaha by online application in the same manner people can now even apply for asset separation due to any form of separation online.


Call It Taxable — or Not?


The way in which payments made by one spouse to the other are designated can have significant tax consequences. Alimony is generally deductible by the payor and taxable to the recipient. Child support is not tax deductible by the payor and does not represent taxable income to the recipient.


Dependent Children


Couples with dependent children also need to consider which spouse will be entitled to claim dependency exemptions for the children. This also can be important for determining eligibility for certain tax credits, such as the child tax credit.


After-tax Values


Dividing assets such as investments means looking beyond their current market values. Since selling an asset in the future may create a tax liability, couples should determine the “adjusted tax basis” (essentially, the cost) of each asset before they reach a settlement. The value of assets that seem equal may no longer be equal after taxes are taken into account.


Dividing Retirement Benefits with a QDRO


A qualified domestic relations order (QDRO) is a court order that spells out the property rights of a spouse or dependent during a divorce with respect to qualified retirement plan assets (such as the assets in a 401(k) account). A QDRO is required in order to transfer all or a portion of the benefits in a qualified retirement plan from one spouse to the other without losing the plan’s tax advantages. Mistakes can be costly.


Beyond Taxes


Divorcing couples who want to name new beneficiaries for their life insurance policies, retirement accounts, and other accounts whose assets pass through beneficiary designations should be sure to do so promptly. Otherwise, an ex-spouse beneficiary could receive policy death benefits or assets left in accounts should the account holder die unexpectedly.


All of these issues can be complex for divorcing couples. Professional advice is essential so give us a call today for more information.


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What You Need to Know About Taxes when You Divorce

Tax planning is an important step in finalizing a divorce agreement. Here are some issues divorcing couples may want to consider.

What’s in a Name?

Alimony and child support both involve one spouse making payments to the other, but that’s where the similarity ends. Alimony payments are tax deductible to the payer and taxable to the recipient. Child support is not deductible and can be received tax free.

Dependent — or Not?

Generally, the custodial parent claims the dependency exemption, although couples can make other arrangements. Parents with more than one child may decide to split the exemptions between them. Parents might also decide to alternate claiming the exemption.

Who Gets the Credit?

The parent who claims the child as a dependent type is entitled to claim tax credits such as the child tax credit and the credit for higher education expenses. However, a custodial parent paying work-related child care expenses can claim the child care tax credit even if the other parent claims the dependency exemption.


Assets To Transfer?

No taxes are owed on the transfer of assets between spouses. However, when dividing assets, it’s important to consider how taxes, such as capital gains, may come into play in the future.

How About Retirement Benefits?

Where retirement plan benefits have been made payable to a former spouse under a court-issued qualified domestic relations order (QDRO), subsequent distributions will be taxable to the former spouse.

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For more information about divorce and taxes, give our tax professionals a call today and read this article.


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Get a Tax Credit when You Install a Home Renewable Energy System

Thinking about installing a renewable energy system in your residence? Uncle Sam offers individual taxpayers a federal income-tax credit equal to 30% of the cost of qualified residential energy-efficient property (REEP).

What Systems Can Qualify?

Credit-eligible property includes:

  • Solar electric
  • Solar water heating
  • Geothermal heat pump (uses ground or groundwater as a thermal energy source for heating or cooling)
  • Small wind energy (generates electricity using a wind turbine)
  • Fuel cell (generates electricity from hydrogen and oxygen through an electrochemical process)

The credit covers the cost of both the equipment and its installation, including labor and any piping or wiring necessary to connect it to your home.

The system must meet specified standards for energy efficiency. You should obtain a certification from the manufacturer that the component you are purchasing meets the relevant requirements for the REEP credit. Note that the manufacturer’s certification is different from the U.S. Department of Energy’s Energy Star label; not all products with the Energy Star label meet the credit requirements.

When available, the tax credit is quite generous. For example, let’s say you spend $6,000 on year on a home solar water heating system that meets all requirements for the REEP tax credit. After considering the $1,800 credit ($6,000 × 30%), the system costs you only $4,200.


The home you are installing the equipment in must be located in the United States and you must use it as your residence. The credit is not available for equipment used to heat a swimming pool or hot tub. Is a blow up spa worth the money? Blow up hot tubs are more convientent because you can move them where you want and their easier to store in the winter.

Solar, geothermal, or wind energy property can qualify for the credit whether it is installed in your principal residence or another residence. The credit for fuel cell property is limited to equipment installed in your principal residence.

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As for cost, the tax law generally places no dollar limits on the credit.However, there is an exception for fuel cell property: The maximum credit is $500 for each 0.5 kilowatt of capacity.

Some states and public utilities offer incentives to encourage the purchase of energy-efficient property. Certain types of incentives may require an adjustment to your purchase price or cost for credit calculation purposes.

Connect with our team today for all the latest and most current tax rules and regulations.

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A Quick Guide to What Paper You Need to Keep and What You can Toss

If you’re like most people, you’ve got lots of paper. Some of it you need to keep, and some of it you don’t. Here’s a look at what to hang on to and the best place to store it.

It’s in the Box

A safe deposit box at your bank or a fireproof box in your home should hold birth ­certificates for you and other family members, marriage and divorce documents, naturalization papers, adoption papers, and death certificates. You may also want to keep property deeds and vehicle titles there as well. And you may want to include stock certificates and bonds that aren’t held by your broker.

Let Your Lawyer Hold It

Your will, power of attorney, health care proxy, trust documents, and other legal papers should be on file with your lawyer. You’ll probably want to keep copies of these documents in your home files and give copies to your personal representative or executor.

On Your Own

Keep records of stock purchases used for determining cost basis, income-tax returns and supporting documents, car insurance and other policies, warranties, and receipts for home improvements in your home filing cabinet where they’re easy to access if you need them.

What To Toss

Credit card statements, receipts, and similar items can be tossed quarterly if you won’t need them for tax purposes. Consider shredding these and other sensitive records before putting them in the trash.

Whether you need individual or business tax advice, give us a call. We’ve got the answers you’re looking for, so don’t wait. Call us today.

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Two Types of College Savings Funds You Should Consider

It’s no secret that college costs have risen dramatically in recent years. Setting up an education savings program as early as possible can help you manage the ever-rising costs of post-secondary education for your children or grandchildren. Two types of college savings vehicles — qualified tuition programs, also called Section 529 plans, and Coverdell education savings accounts (ESAs) — offer income-tax benefits.

529 Plans

Most states offer some form of 529 plan. There are two types of programs — prepaid tuition programs and college savings plans.

Prepaid tuition programs have been around for some time, a quick read on will give you some history on the subject, prepaid tuition lets you lock in today’s tuition rates by purchasing credits or units of tuition in “today’s dollars” for your children’s use when they actually attend college at some future date. Typically, the units purchased are based on the average public school tuition rate in the state offering the plan. Generally, you may purchase amounts of tuition through a one-time, lump-sum purchase or monthly installments.

College savings plans, however, are the more common type of 529 plan. Minimum contribution requirements are generally very low. Once an account is set up, you typically may choose among several investment options.

For federal tax purposes, earnings on 529 plan investments accumulate on a tax-deferred basis. Distributions used to pay qualified education expenses* are excluded from taxation. Many states also exempt earnings and distributions from income taxes, and some even allow a deduction for contributions. Certain state benefits may not be available unless specific requirements (e.g., residency) are met.

Coverdell ESAs

You can establish an ESA at a bank, brokerage firm, insurance company, or other financial institution. ESAs are self-directed and must be funded with cash.

Subject to income limitations, you can make nondeductible contributions of up to $2,000 per year to ESAs for each child younger than 18 years old (and for special needs beneficiaries of any age). Your eligibility to contribute to an ESA is phased out with adjusted gross income (AGI) from $95,000 to $110,000 if you are an individual taxpayer or from $190,000 to $220,000 if you are a married taxpayer filing a joint return.

ESA distributions that are used to pay qualified education expenses are not subject to federal income taxes. Qualified education expenses include not only tuition and fees, but also books and supplies and, for students enrolled at least half-time, certain room and board charges. In addition to undergraduate and graduate-level education, ESAs can cover elementary and secondary public, private, or religious school tuition and qualified expenses.

Give us a call today, so we can help you determine the right course of action for you.

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What You Should Know About the QBO Mobile App

QuickBooks Online’s as a result of Android and iOS app creation, lacks some features found in the browser-based version, but it provides mobile access to tools you may want on the road.

First, it’s free (except for your mobile data plan costs). Second, it’s good. And QuickBooks Online’s mobile app offers more functionality than you might expect. Available for iOS and Android smartphones and tablets, it gives you remote access to the features that you probably use most frequently on your desktop or laptop.

Figure 1: The navigational menu in QuickBooks Online’s mobile app slides out from the left side (iPhone 6+ version pictured here).

Why Mobile?

Since you can already access QBO on a laptop, why would you need an app that’s missing some of the main site’s functionality?

You don’t, necessarily. If your work doesn’t take you out of the office much and you don’t travel for the business, downloading the app may just create one more icon on your smartphone screen that you always see but never open. Check out for best mobile solutions.

But you may want to consider using it if you, for example:

  • Want to work at home or in a coffee shop on your off hours,
  • Regularly purchase items or services that you will submit as expenses to your company,
  • Sell something on the spot and want to create a sales receipt,
  • Need to nail down a sale by creating an invoice immediately,
  • Get a question from a customer or vendor about a past transaction, or,
  • Have to look up a price and description for a product or service.

Figure 2: Using QuickBooks Online’s mobile app, you can create sales transactions wherever you are.

Many Limitations

QuickBooks Online’s mobile app is far from a replacement for the browser-based version. It has numerous limitations. For example, there’s no dashboard – no home page that gives you an overview of your finances and provides reminders about tasks that need to be done. Rather, the app opens to Company Activity, a list of the most recent transactions.

Customer and vendor records are not quite as detailed, and you can’t view or work with your Chart of Accounts. Some settings can be altered, but not nearly as many as on the main site.

There are only two reports available, Profit & Loss and Balance Sheet, which is a tiny percentage of what’s offered online. You can’t enter and pay bills, create purchase orders, or work with payroll. And you can’t check inventory levels.

But the app isn’t designed to be a management or everyday tool. You wouldn’t begin your QuickBooks Online experience with the mobile version; setup and high-level functions like reports, bank reconciliation, and assignment of user roles would be done online by the administrator. There’s a separate application for Intuit’s online payroll, and activities like issuing credits and defining recurring transactions would more likely be done from the office.

While they’re laid out differently, the QuickBooks Online mobile app manages to pack a lot of detail in a small space. It includes the features that a remote worker would most likely need to use. And some of those are quite comprehensive. Forms in the app, for example, lack very little compared to those in the browser-based version, especially those that deal with expenses and payments, which are often done outside of the office.

Figure 3: The QuickBooks Online mobile app looks different from the browser-based version, but it’s very easy to use, and some screens are quite detailed.

Examine Your Workflow

The ability to do accounting work on an app away from the office offers convenience and flexibility that browser-based QuickBooks Online doesn’t. First off, mobile applications show a degree of professionalism and responsiveness to customers and vendors you meet with outside the office. And it keeps you in touch with some of your financial data when you’re on the move.

But can using it create problems? Possibly. Data entered in the app shows up in the browser-based version as soon as it’s entered and saved. But you or your administrator wouldn’t necessarily know to look for an onslaught of expenses or invoices, and by the time they’re discovered, there could be some complications.

So if you’re planning to let employees loose on the QuickBooks Online mobile app and you expect that they’ll use it frequently, it’s best to establish policies ahead of time and make sure that the work that’s done remotely will mesh with the rest of your accounting activities. We can help you prepare well for your new mobile capabilities.

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