Tax Implications of Divorce
There are numerous practical matters to consider when considering a divorce. Amidst changes in your living situation, breaking the news to family and friends, and making arrangements for children, taxes are not likely to be an immediate concern. Tax season will be here, though, in a matter of months, and actions you take now can have a significant impact on your 2018 federal tax returns.
Divorce and Your Tax Filing Status
Your tax filing status influences your standard tax deduction along with exemptions you are entitled to claim, and can have a significant impact on any amounts you owe or any refunds you are entitled to. Under Internal Revenue Service (IRS) guidelines, this is based on when your divorce was finalized, rather than when you and your spouse separated:
- For couples who have separated or are in the process of obtaining a divorce: For filing purposes, you are still considered a married couple, regardless of when you separated or when your divorce paperwork was filed.
- For couples who finalize their divorce on December 31st or at any point in the preceding months: Your filing status will be considered ‘unmarried’ by the IRS for the entire year, and you will be unable to file a joint tax return.
The degree to which this affects you likely depends on factors such as your income and the amount of taxes you paid the previous year. Some couples elect to wait until the new year has started to finalize their divorce, or even to begin the process of filing divorce related paperwork.
Tax Related Issues in a Divorce
In addition to changes in your filing status, marital property agreements, spousal support, and parenting plans can all have a significant impact on your upcoming tax returns. Kiplinger advises discussing the following with your divorce attorney:
- Dependant exemptions and child tax credits: If you have children, time sharing arrangements can be negotiated through the court. Part of these negotiations will be determining who claims your child for tax purposes.
- Medical expenses: If one of the parties is required to pay medical and health care costs for children or their former spouse, this can be claimed on your 2018 tax return.
- Spousal support/alimony: The spouse paying support can deduct alimony paid from their total reported income for the year, while the receiving spouse is obligated to claim these amounts as income.
- Transfer of assets: If you are entitled to a portion of a spouse’s pension or retirement benefits, you may want to discuss options for rolling these funds over into your own retirement account, to avoid potential tax penalties.
- Proceeds from the sale of your home: If you anticipate selling the family home as part of your divorce, you could be subject to capital gains tax.
Reach Out to Us Today for Help
When contemplating a separation or divorce, you need an experienced Florida divorce attorney to act as a strong legal advocate on your side, walking you through all the potential implications. Call or contact Fort Lauderdale family law attorney Vanessa L. Prieto online today and request a consultation to see how we can help protect you.