In the beginning phases of a divorce? A number of tax difficulties need to be resolved to ensure that taxes are minimized and that crucial tax-related action is taken properly, in addition to the difficult personal issues you are currently facing. Here are some things to think about if you’re going through a divorce.
Post-2018 Alimony Considerations
After 2018, the paying spouse cannot claim a tax deduction for alimony or separation support paid under a divorce or separation agreement. However, the spouse who is receiving alimony does not have to count such payments as part of their income. (There are various regulations for divorce or separation agreements signed before 2019.)
Child Support Does Not Affect Tax Liability
Child support payments are not tax deductible for the paying spouse no matter when the divorce or separation is executed (or taxable to the recipient).
The Home Sale Gain Exclusion
Taxes on up to $500,000 in gain from the sale of a primary residence can be avoided in the event of a divorce or legal separation, provided the homeowners have lived in the home for at least two of the preceding five years. Special language in the divorce decree or separation agreement may be necessary to protect this exclusion for the exspouse who moves out. This exclusion applies to gain on the future sale of the home (up to $250,000 each).
In the event that the couple does not qualify for a full exclusion because they do not meet the two-year ownership and use standards, they may be eligible for a reduced exclusion.
Retirement Plan Assets
If your spouse has retirement savings, you may be entitled to half as a matter of law. This money can be utilized for your own retirement, a down payment on a home, relocation costs, or other current needs. Be sure to comply with IRS regulations in order to avoid the early withdrawal penalty (10%).
The main issue with dividing retirement assets is that, while the funds may or may not have been adequate for your combined retirement needs, your personal retirement needs are almost certainly substantially greater. As a result, in order to safeguard your financial future, consider examining not only how these assets will be distributed, but also how you will continue to contribute to them.
Business Interest Transfer
It is important to avoid losing certain tax attributes when transferring certain company holdings during a divorce. Losses that cannot be deducted in the year they are incurred may be “suspended,” as in the case of an S-Corp interest. Divorce might result in the release of suspended losses if the respective interests are transferred. Partners’ shares of partnership debt, capital accounts, built-in gains on contributed property, and other complex tax difficulties may arise with the transfer of a partnership stake.
Additional concerns
You’ll need to learn how to file your taxes moving forward (e.g., married filing jointly, married filing separately, single, or head of household). You should inform the Internal Revenue Service of any changes to your name or address in case you need to make changes to your income tax withholding. Your estate plan must be updated as well.
Stewart Law Group: Experienced Divorce Attorneys Near You
It’s not always easy to pick up the pieces after a divorce. It can be difficult to adjust to a new reality. It can also be stressful to have to make significant decisions about children, finances, and custody. If you want to significantly reduce your load, hiring a strong divorce attorney is a key step. An attorney with Stewart Law Group will listen to your side of the story and discuss your goals. On accepting the case, your attorney will invest the time necessary to really learn about you and your concerns, about the children and their needs, and about your financial situation. Contact us through our convenient client form.