5 Tax Tips to Consider if you are getting Divorced
Divorce tends to be a complicated endeavor emotionally when a marriage dissolves and affects the entire family. However, there are other aspects to getting a divorce like taxes that you must take into consideration as well.
For example, taxes are going to be something to keep a close eye on when getting a divorce. Unfortunately, the IRS isn’t going to take pity of divorcees, so you need to make sure that you have all of your finances in order so that your life doesn’t become more complicated with tax issues. Here are 5 tax tips for divorcees to consider:
Key tax items to think about for Divorcees
Tax Filing Status
Your tax filing status in its’ most simplest form when you are going through a divorce is that if you are still legally married on December 31st, then your filing status will reflect that you are married for the entire year. On the flip side, if you divorced in late December then you would be considered to be divorced for the entire previous tax year. The reason timing of your divorce is critical is it may affect the amount of taxes you will have to pay given your filing status.
If you either received or made alimony payments the previous calendar year, it definitely has tax ramifications.
However, please keep in mind that the IRS has strict guidelines with regards to alimony. In order to take advantage of the tax benefits, the payments and conditions must be outlined in the divorce decree.
Child Support Payments
As a general rule of thumb, child support payments are never going to be tax deductible. There are certain tax benefits that may be negotiated with any custody or child support order or agreement. However, the primary custodian will be at an advantage in the negotiations.
Sale of Property or Transfer of Assets
This particular segment is something that you need to keep a close eye on when getting a divorce. Transfers and sales of assets can generate large sums of capital gains obligations, so if you have sold a home or other asset you could be faced with a large tax bill.
Typically, when assets are transferred during a divorce, a capital gains tax isn’t immediately generated. However, you will have to pay taxes down the line when the property is eventually sold, and you will be liable for the appreciation at that time.
Cost of Divorce
Unfortunately, actual costs of going through a divorce like attorney fees are not tax deductible. However, you may be able to find other expenses that are closely related that can be taken off of your bottom line. Hiring a tax professional to help you handle all of these matters is one example of an expense that can be deducted.
As you can see, there are several key things that you need to consider when getting a divorce. These particular items can make your life even more complicated if they are not addressed immediately. However, by retaining a good tax professional to work closely with your family law attorney can truly pay off in the end.
***This article is for general informational purposes only. You should seek professional tax advice to address your individual situation.