Neglecting tax considerations before or after a divorce is asking for trouble. After dealing with the stress of separating, the last thing anyone needs is an inquiry from the IRS.
So whether you are involved in an Atlanta high asset divorce or a more low-profile divorce somewhere else, keep the following in mind to avoid additional difficulties that may affect your assets,
Property settlement problems often stem both from splitting the asset and determining tax ramifications. If the property is transferred between spouses, the IRS does not recognize a gain or loss. This is true even if cash is provided in exchange for the transfer.
Under some situations, property transfers may be subject to gift taxes and taxes based on a sale can be due. In addition, it is important to note that the IRS tends to take a broad view of property that is subject to tax. Instead of simply considering the primary home and a potential summer cabin, the IRS also reviews many other assets including retirement and health savings accounts.
Determining the proper filing status is important and hinges on receipt of the final divorce decree, according to the IRS. If the decree is finalized any time before the year's end, the correct filing status is single. If a couple is separated the entire time, but the final decree has not yet been entered, the proper filing status is married.
Even if a couple is listed as married, however, there are two options. One is to file as married filing jointly. The other is to file as married filing separately. Generally, those filing separately have a higher tax rate but are not liable for the former spouse's share if taxes are due.
Additional concerns can include:
•· Child support payments: not deductible
•· Child exemptions: generally awarded to custodial parent
•· Alimony or spousal support: deductible
•· Head of household status: contentious
Head of household status can be a contentious issue because it can enable someone to get into a more generous tax bracket and take advantage of a larger standard deduction. The qualifications for gaining this status should therefore be reviewed closely.
Tax issues are complex, and the above is just a sampling of the many ways divorce effects taxes. It is important to discuss how divorce affects your taxes with an experienced CPA.