As April 15th quickly approaches many are scrambling to get their taxes filed, do not forget these helpful tips regarding taxes and divorce.
- Alimony deductions/taxes: Under IRC Section 71 Alimony is taxable to the recipient and tax deductible to paying spouse. It is important if you are receiving alimony that you set aside the appropriate withholdings or you may be owing the IRS additional payments. On the other hand, if you are paying alimony it is important to properly declare these deductions to limit your tax liability and/or increase your refund.
- Sale of Former Marital Residence: Under the IRS code if you sell your “principal residence” you are eligible for a capital gain exclusion of up to $250,000 for a single taxpayer and $500,000 for a married couple.
- Filing Status – Joint vs. Single: An individual’s tax filing status is determined as of the last date of the calendar year, December 31st. Accordingly, if you are married any time during the year, you qualify to file as “married”. If on the other hand you are divorced and/or legally separated you must filed either “single” or “married, filing separate”. Generally, for tax purposes filing joint is beneficial. However, one should take caution before filing jointly with a spouse as this may expose an individual to additional tax liability and/or possible criminal and civil penalties. If you are unsure of how to file it is important to meet with both a qualified matrimonial attorney and an accountant before filing.
- Child Dependency Deductions: Under the IRS code the custodial parent is entitled to claim the child(ren) as a dependency deduction. Generally, the custodial parent is determined as the parent who has the child more than 50% of the time. However, parties often agree and/or the Court orders that the parties’ share the deduction(s). To effectuate this deduction the custodial must complete an IRS Form 8332. If both parties attempt to claim the same child, the IRS will only recognize the custodial parent unless there is a specific Court Order to the contrary and/or an IRS Form 8332 is submitted with your tax returns.
The above are just a few of the numerous tax issues which arise with married, divorced and separated couples. Many of these issues are complicated and fact specific. That’s why it is important to meet with a qualified matrimonial attorney and an accountant prior to filing your taxes. Contact Kevin Falkenstein, Esq. at 856.428.8334 or firstname.lastname@example.org for a consultation.