If you are one of the many people who are going through a divorce this year, you might be wondering, ‘How does my divorce impact my taxes?’. Tax season is extremely stressful on its own and when you add a divorce into the mix, it may feel overwhelming. For this reason, we have put together this blog to help you understand how your divorce may impact your taxes when it’s time to file.
In general, the timing of your divorce can affect your tax situation, particularly if you have significant assets or liabilities that need to be divided between you and your spouse. Here are some factors to consider:
• Filing Status: Your marital status on December 31st of the tax year determines your filing status for that tax year. If you are divorced or separated by that date, you must file as either single or head of household, depending on your circumstances. If you are still married, you can file jointly or separately, which can affect your tax liability.
• Alimony: Alimony is no longer taxable as income to the recipient or deductible to the payor as it once was unless your separation agreement or divorce was finalized before January 1, 2019.
• Property Division: The division of property in a divorce can also have tax implications. For example, if you sell your home as part of the divorce settlement, you may owe capital gains tax on the sale. The timing of the sale can affect your tax liability.
• Retirement Accounts: When it comes to dividing retirement accounts such as 401(ks) or IRAs, there are specific rules and regulations that must be followed to avoid taxes and penalties. For example, if a retirement account is divided as part of a divorce settlement, the transfer must usually be made through a qualified domestic relations order (QDRO) to avoid early withdrawal penalties and taxes.
In conclusion, taxes are an important consideration in a divorce, and both parties should be aware of the potential tax implications of their decisions. Consulting with a tax professional and an experienced divorce attorney can help ensure that all tax issues are addressed properly, and that both parties are able to reach a fair and equitable settlement that minimizes their tax liabilities.
Schedule a consultation with an experienced attorney at Jacobson Family Law today by calling 443-741-1147 or by clicking here.