Dealing with taxes when it comes to divorce
Changes in marital status, alimony payments, child support and dependency issues are often at the top of the list when it comes to questions about preparing for filing a tax return. In this section we cover what you will need to know when it comes to family issues.
Tax planning should be taken into consideration when negotiating a divorce. Along with seeking legal advice, tax advice should be sought as well. If you are in the considering a divorce, give us a call for ideas on how to structure the agreement to optimize tax savings. The following issues can have serious tax ramifications.
- Filing status for pending tax returns
- Use of the Head of Household tax status and dependency exemptions if there are children
- Structuring alimony payments
- Avoiding alimony recapture
- How to handle the family home
- What to do about health insurance coverage
- Consider the tax basis of property being divided
- Division of pending income tax refunds and refunds applied to next year
- Division of estimated tax payments made
- Transfers of employee stock options
- How to handle the transfer of IRA and retirement plan funds
- Reporting of interest on savings bonds
- Existing family trusts and life insurance
- Custody of tax records
- Breakdown of legal fees to show amounts related to tax planning
- Collection of overdue child support
Generally, couples who file jointly are each individually and jointly responsible for any tax, interest or penalty applicable to the return. This is true even if the divorce decree states that one spouse is responsible for previously filed joint returns. This means that the IRS may collect from either spouse 100% of the tax liability, penalties and interest for any unpaid tax from joint returns, or any back taxes incurred through a subsequent audit of a joint return.