Thinking About Taxes During Your Divorce
When you begin a divorce, the last thing on your mind may be next year’s taxes. Unfortunately, it is not a topic you can ignore for too long. You will need to speak with your Leesburg divorce attorney and a financial professional to ensure you make the tax choices that are best for you and your family. And unfortunately, this will mean coordinating with your soon-to-be-ex spouse.
Before filing your taxes during a divorce, consider the following:
Filing a Joint or Separate Returns: If you are fully divorced as of December 31, you will file your own personal taxes separately from your ex-spouse. However, if you are still legally married as of December 31, even if you are divorced by April 15, you will have to determine if it is most advantageous to file together or married-filing-separately. If you and your spouse spent most of the year living together, filing together may make sense. However, if you spent more than half of the year living separately, it may benefit you to file separately as your own head of household. However, because there are many other considerations for how to file, speak with a tax attorney or certified public accountant for advice.
Selling the family home: if you or your spouse retained the family home during a divorce, then you are in luck. Property transfers between divorcing spouses are usually nontaxable. However, if you and your ex-spouse sold the family home during the year, then you will have to determine who benefits from the relevant deductions or handles the capital gains tax above $500,000. Generally, only one person can take a tax credit or deduction. Therefore you will need an agreement in writing as to the tax consequences of selling the home. However, for capital gains, you may both be able to claim up to $250,000 of nontaxable capital gains.
Child dependency: If you and your spouse have children and file separately, there will be a question of who claims the children as dependents. Usually, the parent who provides more than half of the necessary support for a child claims that child as a dependent on their return – this can be the noncustodial parent. If you have multiple children, you can each claim a different one. Also, some parents agree to alternate years claiming the children. A child dependency exemption was $4,050 as of 2016.
It is important to note that child support does not affect either of your taxes. If you pay, it cannot be deducted from your income. If you receive it, you do not include it in your income.
Spousal support: Unlike child support, spousal support does have tax consequences for both you and your ex-spouse. If you pay alimony, you may be able to deduct it from your income. If you receive alimony, you will need to include it in your income.
Do You Have Questions About Divorce?
If you are thinking about filing for divorce or you are in the midst of a legal battle already yet you have question, do not hesitate to reach out to the Leesburg divorce attorneys of Whitbeck Cisneros McElroy PC at 703-997-4982. We have years of experience helping individuals navigate the muddy waters of divorce and the complex tax consequences.