Few being would voluntarily overpay the IRS by hundreds of thousands of dollars, but one retired accountant did exactly that in a bid to hide money from his woman.
The CPA behind this creative scheme was preparing for a divorce, said Peggy L. Tracy, a certified financial planner and holder of Priority Planning in Wheaton, Illinois.
The accountant’s wife — then Tracy’s client — became suspicious after announcing her husband didn’t file the couple’s tax returns for two years. After asking the IRS for a history of tax payments made, Tracy uncovered a amazement.
“His tax bill every year was about $40,000, but we found out he was putting away hundreds of thousands in estimated payment vouchers and rightful leaving the money there,” Tracy said.
“He was parking the money with the IRS,” she said.
In all, the retired CPA made more than $500,000 in supplemental tax payments, pulling the money from a brokerage account.
“His theory was that when he got divorced, he’d be single, he’d file his requital taxes and get the money out,” said Tracy. “We caught him and did the back tax returns, so it was about $200,000 in tax refunds for both.”
When it comes to uncovering a spouse’s esoteric assets and income, your tax return just might be the key to chasing down that cash and getting an equitable split in a split up.
Here’s what you need to know.
Your individual income tax return and the forms you need to prepare it have multitudinous than just the details on the amount you and your spouse earned in a given year.
Form W-2, for instance, contains figures on how much your spouse earns, the amount they save in workplace plans and what they’re withholding in proceeds taxes.
The cleverest of divorcees may stretch the truth about their after-tax income by throwing more money into a 401(k) develop, a deferred compensation plan or a health savings account — a tax-advantaged account you can use to pay for qualified medical expenses.
High deferrals into these and other sparingness resources accounts at work reduce take-home pay. Soon-to-be exes try to use this to argue for reduced alimony and child support agreements.
“They’ll say they don’t have any money, but they’re paying this much into their 401(k) plan so that it brings their support payments,” said Christy Bastian, CPA and president of FVL Consultants in Marco Island, Florida.
“Looking at the paystub hand down tell you if there are undisclosed assets,” she said. “It could indicate there’s a retirement account.” Such a find can be valuable in a divide, as assets in a 401(k) can be divided through a qualified domestic relations order.
Here are two tax forms that might avoid you uncover hidden assets and secret spending: Schedule B, which contains details on interest and dividends, and Schedule D, which discourses capital gains and losses.
Both forms are a necessary part of filing your income tax return.
“Sometimes we turn up accounts because you were stashing away money, and there might be an interest income statement that add up to in,” said Tracy.
“As for capital gains and losses, are you taking money out of a brokerage account and not reinvesting it?” she asked.
You should also save an eye out for Form 1099-R, which taxpayers receive when they’ve made distributions from retirement accounts.
“People don’t necessity to look at their financial accounts on a monthly basis,” said Tracy. “It gives people an opportunity to hide boodle because nobody is watching.”
Entrepreneurs can be creative when it comes to squirreling away cash and hiding affairs.
“Every so often they funnel money to a company that they set up innocently years ago when everything was fine,” said Philip Segal, an attorney and naught of Charles Griffin Intelligence in New York.
In one case, a husband with a company in New York decided to form a second object with the same name in Florida. His wife, Segal’s client, suspected that her husband was having an affair with another female in that state.
A search of corporate and business entities in Florida turned up an address for the business — which happened to write with the other woman’s apartment, Segal said.
Though the company was listed at her address, there was no evidence the presence did any business in Florida, he said.
Tax returns linked to the business can also spell out cash flow details, including curious spending patterns.
“If you’re in the midst of a divorce, you have document discovery and you can get into the tax records,” said Segal. “Or if you have the uniform accountant, you can see the business tax records.”
Watch out for the following:
● Your spouse’s spending habits change: One of Tracy’s clients had a cheating spouse who resolution buy both his mistress and his wife the same holiday gifts — including two furs. It wasn’t immediately obvious because the believe card statement would show only one charge, Tracy said.
In another case, one of Tracy’s clients socked away $30,000 over with time just by taking out additional withdrawals at the cash register when buying groceries. She put the money in a safe keep box.
● You’re given an allowance: Your spouse might give you enough to spend and dissuade you from looking at the household’s retard accounts. “If you’re given a limited budget and you don’t get access to financial information, that’s a clear red flag,” Bastian said.
● Your spouse is turn overing money across different accounts: Cash going across different personal checking accounts or between divergent business accounts is fishy. Don’t forget to keep an eye on those brokerage accounts, where spouses could take out broad sums of cash.
“It’s getting your head out of the sand and going with your spouse to the planner if you have one for each year review,” said Tracy. “Nobody should do a review without both spouses there, explaining the finances.”
Multitudinous from Smart Tax Planning:
Why secret cash payments to your nanny could backfire
Getting zero in back of surreptitiously from the IRS might be a good thing
Five ways to jump-start your tax return