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Tax issues to consider when going through a divorce

On Behalf of | Aug 17, 2020 | Divorce

Saying that divorce proceedings come with complexities might be an understatement. Many spouses do not realize how many issues may come up before, during and after a Texas divorce. Among the concerns are those involving tax matters. Divorcing couples often make avoidable and regrettable mistakes involving local or federal taxes. Understanding common errors may reduce the chances of tax troubles.

Taking allowable credits and deductions will reduce your tax bills. When a taxpayer claims a legitimate deduction, they’re taking advantage of tax laws. Sometimes, credits exist to encourage economic activity or reduce burdens. For example, child-related tax credits help parents pay for costs related to raising and caring for a young one. The “custodial parent” in a divorce may be eligible for various credits, including the dependency exemption. Taking such credits could reduce financial obligations.

Examining the tax consequences during the asset-division process requires careful thought. Both spouses may jointly hold IRA and Roth IRA accounts. An IRA comprises of untaxed funds while the Roth IRA comprises of taxed funds. If one spouse chooses to take the IRA and “give” the Roth IRA to the other spouse, the IRA recipient must understand that they’ll pay taxes on withdrawals.

When involved with capital gains or business-related losses, noting the loss becomes essential to reducing your tax burden. Oversights and error on returns could lead to paying more than is necessary.

Selecting the appropriate filing status before the divorce gets finalized may avoid trouble. Spouses have the option to choose “married filing separately” rather than “married filing jointly.” Speaking with an accountant or a tax attorney about filing status selection may be prudent.

Factoring tax obligations, negotiating property division and other matters could make divorce proceedings overwhelming. An attorney could provide you with the necessary guidance and representation during those stressful times.