Getting divorced can be a hectic experience: it’s often emotional, complicated, and lasts longer than most people would like. To add another layer of unpleasantness to your divorce, there are tax implications that need to be considered as you work through you separation. Splitting from your spouse, dividing up your assets and sharing custody of your children all can affect your taxes. With guidance from an experienced divorce attorney with knowledge about the tax implications of your divorce, you can develop a tax strategy for your divorce that will be in your best interests.
Tax Strategy Considerations For Your Divorce
There are a number of factors that will impact your taxes once you get divorced. Below are several of the more important issues that you will need to consider when developing a divorce tax strategy that is right for you.
- Your filing status is going to change. Your marital status as of December 31 controls how your taxes will be treated, and your marital status is based on when your divorce becomes final. It may be in you and your ex-spouse’s best interest to delay finalizing your divorce so that you can get one extra year as joint filers, which can save you money on your taxes.
- Dealing with real property transfers. Most couples sell assets and other property or transfer property from one spouse to the other as part of their divorce settlement. For example, while real property transfers during divorce are not taxed, remember that the property tax burdens and the cost basis accompany a property transfer. This means you will be responsible for the property taxes on property that is transferred to you during the divorce, and when you sell the property, you will have to pay capital gains tax going back to before you obtained the property as part of your divorce.
- Spousal support. Spousal support (alimony) is a significant part of many divorces. In terms of tax implications, it is important to know that spousal support that is paid is tax deductible while spousal support that is received is considered income for tax purposes.
- Issues involving children.
- Are you going to claim your child(ren) as your dependent(s) after the divorce? A child can be claimed as a dependent for tax purposes only once. This means that only one parent can claim a child as a dependent and get the child tax credit associated with that child.
- Tax credits. Only parents who claim their child as a dependent are eligible for the child tax credit for that child or an American Opportunity or Lifetime Learning college credit for the child. If the parent has custody, but does not claim the child as a dependent, the parent may claim a child-care tax credit for work-related expenses incurred for the care of a child under the age of 13.
- Deductions for child medical expenses. Even if you do not claim your child as your dependent for tax purposes, if you pay for the child’s medical expenses, you can deduct those costs for tax purposes. This is still true even if you do not have custody of your child.
If you are facing a divorce and want to make decisions so that you are not negatively impacted by tax consequences unnecessarily, you can depend on the Law Office of Renkin & Associates to provide you with the guidance you need to make the best divorce tax strategy decision for you based on your particular circumstances. Reach out to us today for assistance.