Benjamin Franklin said, “Nothing is certain except death and taxes”. While you are certain to pay taxes after a divorce, your divorce can have an unpredictable effect on your tax status. Here are some things you need to consider when filing taxes after your divorce.
- Your tax filing status. Your filing status is determined by your marital status on the last day of the year. If your divorce doesn’t become final until January, you will still have to file taxes as a married person. An accountant will be able to determine if it is to your benefit to file a joint return with your ex or if you will save money by filing separately.If your divorce in final on or before January 31, you may file taxes as single person or head of household. To qualify as a head of household, you must have paid more than half the cost of maintaining the home for the year and your spouse must have lived outside your home for at least six months.
- Your dependents. The IRS allows the parent who spends the most time with the child to claim that child as a dependent. The parent who has primary physical custody of the child may also claim the child and dependent tax care credit, earned income credit, and the child tax credit.
- Child support. Child support is tax neutral. You cannot deduct the child support you pay from your income, and you are not required to pay taxes on any child support income you receive.
- Division of assets. Most assets can be divided without a transfer tax; however, there are exceptions. In some cases, money taken from retirement accounts can be taxed.
- Property taxes. Keeping the home as part of your divorce settlement means that you are responsible for the taxes. Your Philadelphia divorce attorney can help you avoid being stuck with a tax bill that you can’t pay.
- Profits from the sale of your home. If you are divorced when you sell your home, you and your ex may each exclude $250,000 of the profit from your income taxes. If you are still married and filing jointly, you may exclude $500,000. You must pay taxes on any profits beyond the excluded amount.
- Legal fees. Some of the legal fees associated with your divorce are deductible. You may claim a deduction for legal fees used to secure taxable income, such as alimony, and for tax advice. You cannot deduct legal fees associated with child support or custody arrangements.
The attorneys a Petrelli Previtera work hard to protect your finances during and after the divorce. We give every client the option of consulting with a tax advisor. To learn more, please contact Petrelli Previtera, LLC at 866-465-5395.