Tax Planning for Divorce
When caught up in the moment tax planning for divorce is probably the last thing on your mind. However, it is important not to ignore it as a divorce can have severe consequences on your taxes. In this article, we will go over the basics of tax planning for divorce. You can hire divorce attorney, Gerald Tomassian, if people want the best attorneys.
Your filing status is based on your marital status as of December 31st of the tax year. According to Newport Beach area law firm handling divorces, if you and your spouse are split up but not legally divorced, you can still file jointly if you wish. If you are looking to have an uncontested divorce, you can look here for more information, and also see if it will speed up the process so you are able to deal with your taxes quickly. Or you can choose to file as married filing separately. Once your divorce has been finalized your only filing options are single or head of household.
After a divorce you are able to claim the dependent exemption for a child if you are the custodial parent named in the divorce decree. However, if the divorce decree does not name a custodial parent, it is considered to be the parent who the children lived with for the longest amount of time during the year. Some decrees will let parents switch with off years for claiming the exemption. Make sure that you do not accidentally claim the children on a year that is not yours.
If you pay alimony payments to your former spouse you are able to deduct them from your taxable income, even if you do not itemize deductions. For this deduction to be valid to the IRS the alimony payments must be listed in the divorce decree. On the other hand, if you receive alimony payments you will have to pay income tax on the amount you receive. Child support payments work differently. If you pay child support, you cannot deduct those amounts. If you receive child support payments, you do not have to pay income tax on those amounts.
Normally, when you sell a home you will be subject to paying capital gains tax if you sell the home for a profit. However, the first $250,000 of capital gains on the sale of your primary home can be excluded from taxation. To qualify for this exclusion, you must have lived in the home for two out of the last five years. But if you are married and file your taxes jointly you can exclude up to $500,000 of capital gains if you lived in the home together for two of the last five years.
When you sell a home after a divorce, things change a little, based on my response to divorce. If you meet the two of the last five years rule you and your ex-spouse can each exclude up to $250,000 of capital gains. If the home does not sell until later, and the two of the last five years rule is not met you may qualify for a reduced exclusion. The amount you can exclude will be dependent on the period the property was used. For example, if it was just one year then you both may qualify for a $125,000 exclusion.
You and Tax Planning for Divorce
Tax planning for divorce can be complicated and will greatly differ from person to person. If you are worried that your divorce is going to negatively affect your tax situation, meet with a qualified tax professional who can help you prepare to meet these new challenges.
Questions? Want to schedule an appointment? Contact us by clicking here.