Tax Implications to Be Aware of Post-Divorce
With the current divorce rate at 41% for new couples, according to Legaljobs, it’s essential to get the best divorce advice possible. A central part of this advice is understanding the tax implications that come with a divorce. Post-divorce taxes can include both personal and business considerations. Here are a few tax implications to be aware of post-divorce.
The spouse paying alimony is eligible for tax deductions, while the spouse receiving alimony must pay taxes on these payments. It is important to note that there are certain requirements that must be met in order for alimony payments to be deductible, such as the payment must not exceed a certain percentage of the recipient’s income and it must end when either party dies. A lawyer can give the best divorce advice for your alimony payments.
Property Tax Implications
The division of marital property can have significant tax implications, particularly if the couple owns a home or other real estate. Generally, any gains made from selling this property may be subject to capital gains tax. Additionally, if one spouse keeps the house after the divorce, they may become responsible for any unpaid property taxes from prior years.
Divorcing couples who have a retirement account such as an IRA or 401(k) must consider the tax implications of dividing these accounts. In most cases, the spouse receiving funds from a retirement account will need to pay taxes on them. Depending on the type of account, there may be additional penalties for early withdrawal.
Filing Status Change
Once divorced, both parties must file their taxes separately. This change in filing status can significantly alter the amount of taxes owed or refunded each year. It is important to speak with a qualified accountant for divorce advice and to understand how this new filing status affects your overall financial situation.
Child Tax Credit
If there are children involved in the divorce, it is important to consider the tax implications of child support and child custody arrangements. The custodial parent is usually eligible for a variety of credits, such as the Child Tax Credit or Earned Income Credit. Additionally, any payments made by one parent to the other for qualified childcare expenses can be deducted.
When going through a divorce, it is essential to understand the potential tax implications. By familiarizing yourself with these issues beforehand, you can ensure that you receive the best possible outcome from your divorce proceedings.