I recently reviewed Julian Block’s Tax Tips For Marriage And Divorce. He has provided me with another guest post, this one with some advice oriented to divorced individuals, although, frankly, most of the advice is more broadly applicable.
Divorced individuals should educate themselves for financial planning.
In these increasingly rough economic times, it’s more vital than ever that you assume greater responsibility for your financial future. You ought not to rely exclusively on paid advisers. At the very least, you should be knowledgeable enough to raise good questions and evaluate answers when you deal with divorce attorneys and other professionals. The informed client gets the best advice.
A quick, low-cost way to become savvy is to sign up for adult education courses on taxes, investing and other aspects of personal finance. Choose from an array of classes tailored to your interest that are available at places like high schools and community colleges. Courses cost a fraction of what it would otherwise cost to meet on a one-to-one basis with instructors, who usually are attorneys, CPAs, financial planners and enrolled agents—i.e., persons licensed to practice before the IRS who are neither attorneys nor CPAs, but who are former IRS employees or have passed rigorous tax examinations administered by the IRS. Instructors use their hands-on experience to provide helpful, unbiased advice on topics that run the gamut from timing the receipt of income and the payment of deductions to your best advantage, to opening, operating and closing business ventures, to getting married or divorced, to when and how much money to take out of tax-deferred retirement accounts like IRAs, 401(k)s and 403(b)s, to whether to make lifetime gifts of money and other kinds of property to family members or to leave the assets to them.
The courses alert you to money-saving techniques that you can apply yourself or, should you decide to seek professional help, test out on your advisers. And, conceivably, those advisers might turn out to be your instructors, whom you’ve had an excellent chance to evaluate.
But be wary of retirement planning services and estate planners who send invitations to free lunch seminars geared to seniors. A 2009 survey by AARP of more than 1,000 people 55 and over found that many who attended seminars on retirement and estate planning were “pitched investments that were unsuitable for them or were asked for information that could expose them to financial fraud.”
The invitations consistently offer the same enticements: “a free gourmet meal, tips on how to earn excellent returns on your investments, eliminate market risk, grow your retirement funds, and spouses are urged to attend. These words should be red flags for investors,” cautions the North American Securities Administrators Association (NASAA) . NASAA is an international organization devoted to investor protection.
Review your will and keep it up to date.
Redo your will if you’ve divorced, legally separated or married since you wrote it. Your property intentions normally change when your marriage ends. And a remarriage also increases the complications, particularly when each spouse has children from marriages.
Update beneficiary designations
for insurance policies and retirement plans.Otherwise, proceeds might wind up with a former spouse or someone you now consider unworthy.
Letter of final instructions
Written your will and checked beneficiary designations? Good for you. Next step: Assemble the information for a non-binding document known in legal lingo as a final letter of instructions. The letter is an informal inventory of your financial records. This includes key names and numbers, and where you store insurance policies, bank accounts, tax info, and other papers. The list helps heirs locate assets and save on administrative expenses. Keep the letter up-to-date and accessible.
Watch withholding and estimated payments
Submit new W-4 forms to employers or W-4P forms to pension administrators. Revise the amounts subtracted from salaries, bonuses or pensions up or down to make sure that taxes withheld will be in rough balance with taxes owed when filing time next rolls around. For help on fine-tuning withholding, use the worksheets in How Do I Adjust My Tax Withholding?, Publication 919. Another resource is the IRS’s calculator at irs.gov.
Do you receive income from sources usually not covered by withholding—for instance, alimony, self-employment, Social Security benefits, dividends, interest, and withdrawals from IRAs and other retirement arrangements? Act now to adjust estimated quarterly payments. Tax Withholding and Estimated Tax, Publication 505, lays out the complete rules.
Copies of income tax returns filed with your spouse.
Need to get hold of copies? You can do so without paying for help from an attorney or anyone else. If you and your spouse paid someone to complete those returns, the easiest way to get them is to contact the preparer. The law, in most cases, requires a paid preparer to keep copies of returns for at least three years after the filing due date—for instance, at least until April, 2013, for a return for tax year 2009, with a filing due date, for most persons, of mid-April, 2010. The preparer is supposed to provide copies to any of the signers.
What if there was no preparer or the returns can’t be obtained from that person? Contact the IRS for copies. You’re entitled to them even if all the jointly reported income was your spouse’s. The IRS charges $57 for each return requested. Simply sign and submit IRS Form 4506, Request for Copy of Tax Form. To ease your burden, it needn’t be signed by your spouse.
IRS forms and publications are available by downloading from the IRS’s website.
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Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as: “a leading tax professional” (New York Times); ”an accomplished writer on taxes” (Wall Street Journal); and “an authority on tax planning” (Financial Planning Magazine). Information about his books is at julianblocktaxexpert.com.
Every encounter I have with Julian, I learn something new. We were talking yesterday and I asked him why he wasn’t blogging. He said he writes for other people’s blogs to promote his books, but doesn’t want to start one himself. I could understand that. Myself, I like other people’s dogs. Then he told me that when it comes to blogging I could be his Shabbos goy. That is one Yiddish expression my years at Joseph B Cohan and Associates never taught me. A Shabbos goy is a non-Jewish individual who regularly provides services that Jews cannot perform on the Sabbath. At one time lighting stoves was a common service performed by a Shabbos goy. Among noted individuals who performed this role are Colin Powell and Elvis Presley.
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com on May 22nd, 2012