The american english poet Ogden Nash once wrote, “ Indoors or out, no one slack in March, that month of weave and taxes. ”
Considering the headlines out of the Midwest last week, March 2012 is –unfortunately — proving him right. This month can be disruptive on many fronts, and for women going through divorce, tax season can be peculiarly difficult –both emotionally and financially.
In an campaign to calm at least part of the storm, here are answers to some of the tax questions most divorce women must grapple with :
What is my tax filing status?
Your union income tax filing condition is set by your marital condition on the last day of the tax year .
so, if you are calm married on December 31st, then you are considered marry for the stallion year. Likewise, if you are divorced on December 31st, then you are considered divorce for the stallion year .
That partially is relatively slowly, but if you are legally separated, things are more complicated. hera ’ south why :
The IRS normally follows state of matter police for determining marital condition. In other words, whether or not you are considered married or unmarried will depend upon complicated laws at both the state of matter and federal horizontal surface .
For exemplar, according to tax jurisprudence, an individual legally separated from his/her spouse under a decree of divorce or a decree of separate sustenance shall not be considered as marry. But, not every state allows for a decree of branch care ; if you live in one of those states, you are still considered married until your disassociate is final. You need to ask your lawyer and/or tax adviser whether your current legal status meets the definition of a decree of separate care. ( Read more about this consequence at my former post Legal Separation or Divorce –Which is Better Financially ? )
If you ’ re legally divorced, you must file as single or head of family. But, if you are still legally married, the IRS constantly allows you to file either jointly or individually. Tread carefully, however. For many, that choice can be a double-edged sword .
On the one hand, if you choose to file individually, you can not be held creditworthy for your conserve ’ sulfur amateur taxes. On the other pass, if you choose to file individually, you may miss out on key benefits and deductions. ( A married charge jointly recurrence is broadly the most advantageous filing condition for most people. )
besides, please note : even if you choose to file individually this class, you will still be responsible for tax returns from prior years when you and your husband filed jointly .
What responsibility do I have if I sign a joint tax return?
Unless you take the appropriate precautions, signing a joint tax render can lead to trouble. Attorney Norman Heller, partner and marital exercise group leader, at Blank Rome in New York City, suggests you
- obtain a copy of the returns well before the filing deadline so your attorney and tax advisor can review them before you sign, and
- protect yourself with an indemnification agreement.
“ If the conserve wants the wife to sign joint tax returns when they are divorcing, she should try to obtain an damages agreement in which the husband agrees not only to pay the tax due on his and her income for the year, but besides to hold her harmless should the IRS or state of matter tax authority late determine more tax is owed, ” Norman told me .
What happens if we file jointly, and there’s an overpayment (or underpayment) of taxes?
If there is an overpayment of tax, then your lawyer should seek to have allocated to you some part of the overpayment, or at least confirm in writing it ’ s a marital asset to be considered in the settlement or at test .
If there ’ s an underpayment –because say, your husband takes aggressive tax positions or is in a cash business and doesn ’ t accurately record his income — you may not want to join in the joint returns since you can be held liable if the IRS comes after the parties for underpayment of tax .
“ Innocent spouse discussion is not constantly available even if the wife wasn ’ t the one fail to report income or taking improper deductions, ” Norman cautioned .
Can I file as “head of household?”
Filing as head of family will typically result in a lower tax bill than filing as unmarried, but this appointment has rigorous requirements. To qualify as head of family you must :
- maintain a household for your child (even if you do not claim them as a dependent)
- be unmarried at the end of the year or living apart from your spouse for more than six months
- provide more than half the cost of maintaining the household
- be a U.S. citizen or resident alien for the entire tax year
In summation, the family must be your home and broadly must besides be the main home of the qualifying dependent ( i.e., they live there more than half the year ) .
People sometimes mistakenly believe that claiming a child as a pendent entitles them to file as head of family. This is not necessarily true. even if you allow your ex-spouse to claim your child as a dependent, you can however file as head of family, provided you meet the requirements above .
Am I allowed to claim an exemption for my children?
The custodial parent is entitled to the exemption for children, although in some cases, this exemption can be traded to the non-custodial rear using IRS class 8332.
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The prize of the exemption for children varies significantly depending on income, thus talk to your accountant and disassociate fiscal planner to see what would benefit you most .
Child-care credits are unlike than the exemption for children. Child-care credits cannot be traded ; alone the custodial rear can take them .
Are child support payments considered taxable income?
No. Child support is always tax-neutral, meaning it can ’ metric ton affect your taxes in any manner. Child accompaniment payments are not taxable income for the parent receiving the support. In summation, they are not tax deductible for the parent paying the support .
Are alimony payments considered taxable income?
Yes, most of the time. alimony payments are about constantly taxable income for the recipient role –and they are tax deductible for the payor. however, the IRS is identical stern regarding what qualifies for the alimony deduction. For exemplar, if you and your husband cover to share a residence after the disassociate, any alimony payments made during that fourth dimension can not be deducted. besides, the alimony payments deducted must be as outlined in a written separation or divorce agreement. ( See a more detail discussion in this earlier military post, Seven Key Things Women Need to Know About the Tax Implications of Alimony Payments. )
In some cases, the conserve and wife might agree that alimony will not be considered taxable income to the recipient role and tax-deductible to the payor. If that language is included in the final examination divorce decree, then that income will not have to be declared by the recipient. Of course, the payor will not be allowed to deduct those payments, either .
Are assets transferred as part of my divorce settlement agreement taxable?
When assets are transferred as region of a divorce colony agreement, the beneficiary doesn ’ triiodothyronine have to pay taxes on the transfer. however, if you decide to sell that property by and by, you will have to pay capital gains tax on all the taste earlier, deoxyadenosine monophosphate well as after, the transfer .
capital gains taxes can be significant on big-ticket items, like your house. here ’ s an exercise. Let ’ s assume you bought the base for $ 200,000, and it ’ sulfur now worth $ 600,000. Your capital profit is $ 400,000. Subtract your $ 250,000 capital gains exclusion as a single person, and you ’ ll have to pay capital gains tax on $ 150,000. At the stream capital gains tax rate of 15 percentage, that amounts to a $ 22,500 tax beak ! ( And chances are reasonably good that those tax rates will increase in the near future. ) capital gains tax is just one deduction you need to consider when deciding whether or not to keep your sign of the zodiac after divorce .
Is divorce tax advice deductible?
possibly. Although you can not deduct the cost of your divorce lawyer and other expenses directly related to your divorce, you may be able to deduct certain fees and expenses for professionals who help you prepare your taxes, and what ’ s more, professional advice may be able to save you thousands of dollars in the taxes you owe .
One last word of caution
In many marriages, the husband simply signs the wife ’ second name to the returns, and she never actually signs them. As Norman points out, a womanhood who ’ mho going through divorce should never take that chance .
“ once a divorce action is commenced or contemplated, the wife or her lawyer should make it absolved to the conserve that he no longer has her consent to sign her appoint to anything involving tax matters, ” he advised .
I have only brushed the surface in this short blog post. even so, I ’ molarity certain this much is obvious : tax jurisprudence is incredibly complicated –and unfortunately, if you ’ ra going through divorce, you ’ ll indigence to keep the short and long-run tax implications of any disassociate colonization option top-of-mind. This is incredibly crucial and one of the many areas where an experienced divorce fiscal technical can make a significant dispute in the final consequence of your divorce and your future fiscal security .
P.S. If you ’ ra curious, the fully quote from Ogden Nash is this :
Indoors or out, no one relax in March, that month of wind and taxes, the wind will presently disappear, the taxes last us all the year. ~Ogden nash
I besides got a chortle from this one :
It ‘s income tax time again, Americans : time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta. ~Dave Barry
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Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC ( hypertext transfer protocol : //www.BedrockDivorce.com ), a divorce fiscal scheme firm that entirely works with women across the state, who are going through, or might be going through, a financially complicated divorce .
He besides advises happily marry women who have seen their friends blindsided by a divorce initiated by their husbands and wonder ( wisely ) how financially vulnerable they ’ five hundred be in that situation. Jeff developed the nation ’ s first gear Just in Case ( TM ) : Secure Your Financial Future, a one-hour broadcast, which quickly shows marry women how to be prepared in the event of a future disassociate with contiguous, practical steps. He can be reached at Landers @ BedrockDivorce.com .
All articles/blog posts are for informational purposes lone, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your legal power. The opinions expressed are entirely those of the generator, who is not an lawyer .
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