More effects of divorce on taxes
In one of our posts last month, we talked about the value of the innocent spouse rule when dealing with some tax controversies after death or divorce. That rule is a form of protection for ex-spouses who find out later that their mate didn’t take care of taxes the way they pledged to. When the conditions are right and presented correctly, it’s possible to use the rule to eliminate a tax obligation.
Experienced tax attorneys know that a claim of innocence isn’t possible in all cases. What that means is that couples in Las Vegas and elsewhere in Nevada need to be as attentive in how they plan their divorce as they likely were in planning their marriage to minimize possible tax issues in their next stage of life.
Tax moves to consider in divorce
- Know your filing status. You might have divorced at any time during the year, but your marital status as of the last day of the year is what the IRS goes by. Even if you divorce on Dec. 31, you count as having been single for the entire year. If you fail to adjust for single-earner status, it could prompt a red flag at the IRS. Head of household benefits might be affected as well.
- If you are parents, decide who gets child tax breaks. Often the custodial parent gets the break, but there are cases in which parents agree to alternate years in claiming the benefits. It’s also important not to lose sight of the best interests if the children the planning process.
- Set spousal and child support with taxes in mind. Laws change, and Congress is looking at reducing tax benefits in terms of spousal support. However, for 2017, spousal support payments are tax deductible and count as income to the receiving spouse. Child support is neither deductible to the payer nor counted as income by the receiver.
- Leverage a QDRO to cover retirement money. If you have been diligently saving for retirement, that money is subject to division at divorce. Without a Qualified Domestic Relations Order, tax advantages that usually apply might be lost.
Planning for divorce lacks the attraction of planning for marriage, but considering the potential tax headaches that can be avoided, it is worth it.