Taxes may be the furthest thing from your mind when getting a divorce, but unfortunately, issues can arise if you ignore the subject. Avoid any surprises by preparing yourself for when the time comes. Below are six tips that will help you with taxes during the divorce process.
1. Check Your Calendar
For tax purposes, your marriage status on Dec. 31 is your marriage status for the whole year. If you believe your tax bill will go up after your divorce, consider waiting until Jan. 1 to make your divorce official.
2. Gather Account Statements
Your statements are needed to make an inventory of your assets and liabilities. Gather as much information as you can on your assets—homes, cars, investments, and loans—to create a well-rounded statement of your net worth.
3. Make a Plan for Your Home
If you’re planning on selling your home, do it while you’re still married. The IRS exempts the first $50,000 of gains on the sale of a home when you’re married, but only $25,000 if you’re single.
4. Prepare for Alimony & Child Support
While child support is not tax-deductible, alimony is. Tax deduction for paying alimony can be valuable for those in higher tax brackets. If you’re receiving alimony, plan ahead for the tax bill. Usually no one withholds taxes from an alimony check, so you may need to make estimated tax payments during the year. You could also increase your withholding at work to help offsets the alimony taxes.
5. Look at Tax Consequences
Look at tax consequences when splitting your assets. For example, getting $100,000 in cash after a divorce settlement is different than getting $100,000 in stocks. You may have to pay a capital gains tax for the stocks, which would lessen the amount that goes in your pocket.
6. Hire a Lawyer
Issues will no doubt arise as a result of taxes during or immediately following a divorce. Laws change and applications can be lengthy and complex, and having an attorney can make the entire process much easier for you. Hire an experienced divorce lawyer. You’ll need it.