As you know, there is a lot that goes into divorce. While child and spousal support are key financial factors in many cases, one thing that people overlook at times are the tax implications of your divorce. There are a few things that you should be aware of when it comes to your divorce and taxes. Let’s take a deeper look at the impact your divorce has on your taxes.
Determine Your Tax Filing Status
Whether you file with your spouse or file separately will determine your tax bracket, available deductions, and overall tax bill. Being officially divorced by December 31st the prior year means you need to file your tax separately. Being the custodial parent of one dependent child, you can file as a head of household. This means you will receive a larger standard deduction and reduced tax rates. However, if you are separated and still in the divorce process at the end of the prior year, you can either choose to file jointly with your spouse or list your status as “Married Filing Separately”.
Division of Property
While going through a divorce, assets that are transferred can cause a change to your taxes. If you receive an asset through your divorce, you are responsible for the tax obligations that are associated with the asset. It is important to understand this before you try to complete your settlement agreement.
Paying Alimony or Spousal Support
When you are the spouse who pays alimony, you are able to deduct your payments from your taxes. However, if you are the one who is receiving alimony payments, you are required to pay taxes on the payments you receive. This is because the state of Maryland views alimony payments as a form of income.
Keeping the House Means Paying for Property Taxes.
Keeping the old house means having to pay the monthly mortgage on your own and the full amount of property taxes. You will not pay any tax on the property transfer, but if your property increases in value of more than $250,000 since you first bought it with your spouse, you might be paying higher capital gains taxes with the hope and decision of selling it on a later date.
Know All Your Deduction Privileges
The costs of consulting a financial analyst on your tax situation and doctors or health-care providers for your children, even if you are not the custodial parent can be deducted from your tax. Also, tax deductions can be determined from work-related expenses on caring for children under 13 years of age. It makes sense to itemize each option and determine which one will save you the most money, although taking the standard deduction can be convenient, too.
It is important that you have as much information about what your divorce means for your finances as possible. That is why working with an attorney is extremely helpful. We are here to help you navigate the treacherous waters of divorce and come out on top. Get started on your future today by scheduling a consultation.