Because of my financial background I have a thorough understanding of the tax implication of divorce. If you are concerned about what may happen with divorce and taxes, Brian A Grady divorce attorney Kane County Illinois, will thoroughly analyze your finances, so your tax implications are clear.
Some of the most frequent questions are:
- Do we submit a tax return together?
- What is my filing status?
- Can I deduct spousal support payments?
- What are the tax consequences of property transfers?
When the 2018 Tax Cuts and Jobs Act, the tax implications of divorce changed. It is essential that you understand how you may be affected if you divorce.
Changes to alimony (maintenance) since 2019
Since 2019, there have been significant changes in tax law. One of the biggest changes is that spousal support is not deductible. Also, the recipient does not have to include spousal support as revenue.
Tax returns
Filing status of tax returns is based on when the final judgement was entered. If it was not entered by December 31st, you can file jointly, because your legal status would be married. Once the divorce is finalized (the judgement / decree has been issued), you need to file individual tax returns.
Child credits and exemptions
In the past, there were tax exemptions for children. Now there is a tax credit of $2,000 per child (under the age of 17). In a very simplified example, if you owe $8,000 in taxes, but you have a $2,000 child credit, in the end you pay $6,000. Or, if you owe $0 and have a $2,000 child credit, you’re likely entitled to a refund.
In addition to the child tax credit, there is also a child and dependent care credit. If your child is under 13 and you pay child care expenses in order to work (or seek work), the custodial parent can claim this credit. The credit amount for one person cannot exceed $3,000.
Typically, the primary caregiver is able to claim the child tax credit. However, many divorce decrees do not spell out who is able to make the claim. For particularly tricky issues like this, an experienced attorney, like Brian A Grady Divorce attorney Kane County Illinois, can make sure your rights are protected.
In some divorce decrees, the custodial parent may sign IRS Form 8332. Signing this form means the non-custodial parent is able to claim the child tax credit. Typically, this document is binding, but if you want an attorney to review your options, you can contact Brian A Grady Divorce attorney Kane County Illinois.
Residential property Issues
If you and your partner owned a house together, chances are in a divorce one person will take ownership over that property. In order to avoid tax penalties for this, the property transfer must be in the final divorce decree and must occur within one year of the final judgement.
In many cases the parties agree to sell the house and divide up the profits from the sale. In that situation, gains from the sale will likely be taxed. However, the gain is excluded from income if it was owned and used as the taxpayers primary residence for two of the last five years. If you file individually, the exclusion is limited to $250,000 and if you file jointly, it is limited to $500,000. As always, there can be exceptions, so it is essential that you hire an attorney who has a strong financial background, like Brian A Grady Divorce attorney Kane County Illinois.
Pensions
Often in a divorce a retirement plan can be a very valuable asset and the spouse may be awarded part of that retirement plan. In order to ensure that you don’t take a huge hit from this come tax time, there are different options available.
- You can cash out, which means you’ll take the entire distribution. In this scenario you pay income tax on the entire amount and a 10% penalty for early withdrawal.
- You can cash out your interest in the plan and roll it over to another one (such as an IRA). This option is tax free if the rollover takes place within 60 days.
- You can take your interest in the form of a Qualified Domestic Relations Orders (QDRO). Under a QDRO, the pension administrator has to carve out for you your rate of interest in your partner’s pension. You will have the very same legal rights in relation to the pension as does your spouse. This option is also tax free.
Tax consequences of divorce can be tricky. It is important to have a qualified attorney with a strong financial background. Brian A Grady Divorce attorney Kane County Illinois, will ensure you are protected when it comes to divorce and taxes.
Taxes influence every facet of our lives, including divorce. Whether you have limited assets or a complex financial situation, you want to protect yourself, your finances, and your future. Brian A Grady Divorce attorney Kane County Illinois, understands the intricacies of the tax laws and their impacts on a divorce. Contact us today to discuss your case and to plan for your future. ([email protected])
Brian A Grady divorce attorney Kane County Illinois