Will Divorce Change My Tax Obligations?
Whenever a person goes through a divorce, there are a lot of changes in a person’s life—almost immediately. Some of them are pretty obvious, but others might not be realized until later on. One thing that people do not ask themselves at first is, will divorce change my tax obligations?
The first thing that changes with taxes is that you are no longer married, meaning you can’t file your federal income taxes jointly or even as married filing separately. A person will need to be listed as single, or possible as head of household, which sometimes can lead to higher standard deductions. Keep in mind that head of household can only be used by one person after a divorce. This is going to go to whoever has control of children in the family.
Speaking of children, dependents are going to change when it comes to filing taxes. Only one parent is going to be able to claim the children on their income taxes. The custodial parent is usually the one who is going to get that opportunity. The person in charge of the kids will get a child tax credit, a credit for child care independent expenses, earned income tax credit and credit for qualified educational expenses.
Alimony now needs to be claimed, and so does receiving child support. The extra money coming in is certainly going to be nice to use, but the downfall is that it is going to be taxed.
After a divorce, many people are going to consider selling the family home. At the very least, one person is going to move out and the other person is going to take on full responsibility for the home.
Selling a home for profit is going to make an impact on taxes, but a couple that is divorcing will be able to get some of those gains waved. That means that the tax bill overall for a home sale is not going to be that big. Most couples can exclude up to $500,000 in gains, so $250,000 each, if filing separately.
Retirement accounts are also going to take a little bit of a hit. Couples are usually going to divide retirement benefits when a marriage ends, and that will change tax obligations a little bit. Suddenly, one person is likely going to get a little bit more retirement than the other, depending on what kind of jobs are held. This is usually a bit of a waiting game, as sorting out retirement accounts can be a frustrating experience.
A divorce is always going to involve legal fees, and some might feel like they could catch a tax break there. Unfortunately, legal fees are not tax-deductible at this time. It is something that will not be back until at least 2026.
Figuring out tax situations with divorce is tough. Milwaukee family attorneys Karp and Iancu are two of the best in the business for their area. Finding quality family attorney options will always pay off.