Completing your divorce before the end of the tax year can have significant financial implications, especially in terms of your tax filing status and deductions. Here are some factors to consider when deciding whether to complete your divorce before the end of the tax year:
1. Filing Status: Your marital status as of December 31st determines your filing status for the entire tax year. If you are divorced by December 31st, you will typically file as “Single” or “Head of Household,” depending on your circumstances. This can affect your tax brackets and standard deductions.
2. Tax Deductions and Credits: Many tax deductions and credits are based on your filing status and household situation. For example, if you have children and are the custodial parent, you may be eligible for certain tax credits. Being legally divorced can impact your eligibility for these credits.
3. Financial Agreements: Ensure that financial agreements, such as the division of retirement accounts or the family home, are structured in a tax-efficient manner. For example, a Qualified Domestic Relations Order (QDRO) may be required for the tax-advantageous transfer of retirement assets.
4. Healthcare and Deductions: Consider how the divorce affects your access to healthcare benefits, as well as deductions related to medical expenses. Your eligibility for these benefits may change post-divorce.
5. Review Financial and Tax Implications: Work with a financial advisor or tax professional to review the specific financial and tax implications of your divorce and to help you make informed decisions regarding timing.
7. State Laws: Keep in mind that state laws can vary. Some states have community property laws that can impact the division of assets and liabilities, which, in turn, may affect your tax situation.
8. Cost and Complexity: It’s important to balance the potential tax benefits with the cost and complexity of finalizing your divorce before year-end. Rushing a divorce solely for tax purposes may not be in your best interest if it leads to unfavorable settlements or financial stress.
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. To schedule a consultation with an experienced attorney at Jacobson Family Law call 443-741-1147 or schedule online by clicking here.