Understanding the Tax Implications of Divorce
Tax implications are the last thing that feuding or divorcing couples think about. While a Schaumburg tax implications attorney cannot ethically give you financial advice, they can ensure you are aware of what your tax situation may be like post-split. You may be eligible for a substantial tax refund if you claim your children in your returns.
Top Divorce Tax Considerations That You Should Consider
By understanding these implications, you can take measures that can ensure you can support yourself and keep the IRS happy simultaneously. Here are some of the top ones you should consider:
The Child Care Tax Credit
You are eligible for an impressive tax refund if you claim eligible children on your tax returns. Some parents prefer to alternate years in which they can receive those returns so both of them can benefit. They do that by claiming the children on their returns when it is their turn. Others prefer to divide their children. So if they have four children, they will take two each. This way, both parents can claim returns each year.
Child dependency exemptions can be done in several ways and are almost always contentious. Both parties want the largest tax refund they can get. A Schaumburg tax implications attorney can fight for your rights and best interests. With help from accounting experts, they can also show you how the decision can impact child support obligations.
The bottom line is that if you claim your children on your taxes, you can get another source of income that can support your family. But you can also pay more for child support if you get the dependency exemption. Tax implications are unique for each family. Your attorney can help you determine what you should and shouldn’t opt for.
Taxes Relative to Child Support
Child support in Illinois is calculated using the net income of both parents. This is the income they end up with after they pay their taxes. Child support cannot be taxed, and the person delivering it cannot deduct it either.
Cash or Property Awards in a Divorce Decree
When you split marital property during a divorce, you also need to consider its tax implications or suffer the consequences later. This includes property tax on the real estate you have. If, for example, you decide to sell off your marital home, you will have to pay a capital gains tax on the sale. If the property goes for more than $250,000, it can be excluded from taxes if you are single. Couples that file together can expect a $500,000 tax exemption.
Marital property transferred to a spouse as per a divorce settlement cannot be considered a taxable gain if they are included in the decree a year after the divorce is finalized. The only transfers that are taxable are retirement funds or pensions. But you can avoid those taxes by filling out a Qualified Domestic Relations Order (QDRO) or by adding those funds to a different account you use for retirement savings.
Tax Implications for Spousal Support
Spousal support (formerly known as alimony) was tax deductible before 2018 in Illinois. Today, both the payee and payer have to pay taxes on it. This is a bit problematic since, per official state guidelines, pre-tax funds must be used to determine spousal support. The assumption is that those funds are taxable for the recipient so that the payer can deduct them.
If that is not the case, as per the guidelines, support awards can be higher than anticipated, which can overburden the payer. The good news is that a Schaumburg tax implications attorney can use certain judicial decrees to calculate support till the issue is taken care of.
Taxes for Attorney Charges
Contrary to popular belief, any funds received for attorney fees and costs are not taxable in an Illinois divorce case. These are marital funds and must be split between both parties equitably. In some cases, they are used to reduce debts.
Investments and Business Interests
Your business profits can be taxed if they are used as personal income. Your Schaumburg tax implications attorney can explain those tax implications in detail and how they can impact your spousal/child support and property division. Besides this, the other party’s attorney may also consider the untaxed losses or gains from previous investments and business ventures.
How You Can Figure Out Your Filing Status
If you are about to file for divorce or complete the process, your filing status for the year will be affected by the filing date and the resolution terms. The following are common filing statuses you can file under:
Married but Filing Separately
Even if you are still married in the eyes of the state, you can file your tax returns independently from your spouse. You may be paying a lower tax when you file under this status. This way, you will only be accountable for yourself so you can work to make yourself financially stable after the divorce.
Married but Filing Jointly
It can be difficult at first to file jointly with a spouse you are about to divorce, but doing so may be in your best interests. This includes a substantial deduction for married couples. If you have to pay spousal and child support, the deduction can help.
You cannot file your taxes under the above-mentioned statuses if you have finalized your divorce as of December 31st. You have to file as a single if you have no dependents. This means you can get the same tax deductions as a married individual who files separately.
Head of Household
If you are the head of your household, you can file as one if you are single or finalized your divorce before December 31st. You can only do this if you have someone dependent on you and have also paid for more than half of the maintenance costs of your home. This includes children.
Remember that you can only claim a child as a dependent if you can prove you spent most of your parenting time on them. Once that is done, you can claim them for tax purposes. As the head of the household, you can expect a deduction that is higher than one that a single person can expect but lower than one that a married couple can get.
Why Hiring a Schaumburg Tax Implications Attorney Should Be Prioritized
Some of the top reasons why you should hire a divorce attorney include the following:
To Help You Understand Your Tax Implications
Filing after your divorce can be challenging if you have no experience doing taxes. With help from an experienced accountant, a Schaumburg tax implications attorney can help you come to terms with the tax implications you may face. You can get the legal advice you need and financial advice that can help you file appropriately so you don’t face penalties you cannot afford.
For Their Extensive Experience
Divorce lawyers understand legal procedures that surround these cases in ways you do not know because of inexperience. They draw from their extensive experience to help their clients when faced with challenges. This saves both time and money.
Their due diligence comes in handy in high net-worth cases in which some spouses try to hide assets so they can benefit from them later. These assets are usually placed in offshore accounts with friends or purchased by selling a property you may not know your ex has. With help from a qualified CPA, your attorney can unearth those assets and income sources, so you don’t miss out on the funds you deserve.
They Work for YOU!
The bottom line is that your attorney is responsible for representing you, which means they are loyal to YOU only. Your spouse, their attorney, and the court does not matter. Their job is to ensure you have the information and guidance to protect your best interests during your divorce case.
They will also let you know if the offers from the opposing side (such as property division, child custody, and spousal support arrangements) are equitable or not. If not, they can present counter agreements till you get what you deserve and both parties are content.
You need to understand that your spouse is no longer loyal to you if they were in the first place. They are in it for their self-interests, and your Schaumburg tax implications attorney will tell you to follow suit. Think about what is best for you. Your lawyer may add more items to that list you never even thought of.
Contact The Law Office Of Fedor Kozlov, P.C., For A Consultation Today!
If you wish to file for a divorce or want to understand future tax implications, contact us at the Law Office of Fedor Kozlov, P.C., for an appointment today. Our divorce attorneys in Schaumburg and Chicago are highly proficient in such cases and can provide custom solutions for complex challenges.
As dedicated family law attorneys, we offer a wide range of services you may not find in other law firms. This includes dispute resolution and representation services by skilled negotiators. We understand that you are going through a difficult time and can provide you with the legal representation needed to make a fast recovery post-divorce. Book a consultation by dialing (847) 241-1299.