Whopping Tax Bill From Your Divorce?Submitted by Blue Rock Wealth Management on April 26th, 2017
Whopping Tax Bill From Your Divorce? 7 Tips for the Newly Separated/Divorced
If you're going through a divorce or maybe recently finalized a divorce, taxes were probably not the first thing you thought of. Taxes are probably one of the few things that rivals divorce on the list of things you don't like to think about! To save your brain power, here is a short list of 7 things that could make a big difference for you:
1. You're probably still going to need to file jointly if you were still married at the end of last year even if your divorce is now final. There are big disadvantages to Married Filing Separately vs filing together. Try to collaborate on this or you both may end up paying more.
2. Get Some Help! I'm a financial planner, not a tax preparer so please seek a tax advisor for this part. Even if you've done your own taxes in the past, at least during this transition I encourage people to get a tax advisor who can help them navigate what might be the last return filed jointly but also to help understand what will be different when you file as a single person. You may need to adjust withholdings for next year.
3. Think About the Kids! Usually the parent with custody claims the kids as dependents but you've got some choices here. If the noncustodial parent earns significantly more, he or she may benefit more from claiming the dependent or any child tax credits or college credits. Ideally, you'd negotiate something that benefits both partners as much as possible.
4. Medical expenses paid for kids post-divorce even if you don't have custody can still help you out. If you paid those, make sure to tell your tax preparer so you can include those among all of your medical expenses paid to see if you have enough to claim a deduction.
5. Talk with your attorney about payments to your ex for alimony and/or child support. Alimony is deductible for the person paying it (and taxable to the person receiving it) but child support isn't. This is an area where getting some tax advice can really help understand the benefits and drawbacks for both partners and planning ahead can make a big difference.
6. If you received alimony and want to defer some of it from taxes, that income does qualify for IRA contributions. If you're under 50, you can contribute $5,500 for 2016 and you can contribute $6,500 if 50 or older and you can make the contribution up until you file your taxes.
7. Be careful of selling assets you received in the divorce. You can transfer assets between spouses without creating tax consequences normally but if you later sell stock or a piece of property that you received as part of your divorce, there certainly could be a tax bill. Make sure you find out ahead of time.
Taxes are one of the biggest expenses for most people. Too often, it's one of the last things divorcées think about but a little planning goes a long way. Life and taxes must go on even if the marriage is no longer. To learn more about planning your financial future, visit www.bluerockwealthmanagement.com