What Are The Tax Implications Of Divorce In Illinois?
Most divorcing couples overlook the tax implications of divorce before it is too late. A Schaumburg tax implications attorney, or any attorney for that matter, cannot ethically give them tax advice if they don’t have the education or the experience to do so. That is why most couples turn to accountants to determine the tax implications of their divorce, among other mistakes.
Top Tax Implications of Divorce in Illinois
Certain tax implications can significantly impact the terms in your divorce agreement, and these should be discussed during negotiations. Some of them include:
Business Interests and Investments
If you or your spouse is a business owner, its profits may be taxed as part of personal income. You need to understand this to determine its effect on child and spousal support. The business or investments may also have untaxed losses and gains from the past years that must be carried into the next. All of these factors have to be included in the divorce agreement.
The last thing you want at this time is to discover a hidden business that has been taxed during your marriage. An experienced Schaumburg tax implications attorney can discover such assets easily.
Dependents and Tax Credits
Your children’s best interest should be your main priority during your divorce, especially when parental responsibility is being determined. Parents should be aware of how tax implications can affect their children via the exemptions they can claim.
The children will be dependents on the custodial parent. However, exemptions can be split, or the court may order alternative exemptions each year. If the non-custodial parent claims exemptions when it is their turn, the custodial parent must submit a Release of Claim to Exemption for Child by Custodial Parent form with their tax return.
Besides this tax exemption, the parents may also qualify for:
Child Tax Credit
Eligible parents can claim upwards of $1,000 as tax credit per dependent child. The children have to be under 17 years old at the end of the filing year.
Child and Dependent Care Tax Credit
If your children are under 13 years of age, you can claim a tax credit for a portion of child care expenses.
Retirement Account Taxes
In most cases, retirement funds or 401k account transfers are not taxable. Once a divorce is finalized, on the other hand, tax penalties are liabilities that are applicable on payments and withdrawn funds.
To prevent this from happening, make sure that your retirement accounts are also part of the divorce decree and try not to spend money on divorce expenses. If you take out funds from an investment account prematurely, you can face significant tax implications. Retirement assets have to be divided as per strict IRS rules and regulations.
When a property is divided as part of a divorce settlement, you may not incur any taxes on it. On the other hand, taxable gains will be considered if you sell off property or investments during divorce proceedings. The first $250,000 will not be considered. This can go up to $500,000 if you file with your spouse. You will only be eligible for this if you were still married during the filing year.
Any funds transferred from a retirement account or pensions will be taxed. However, this won’t be the case if it is transferred into another retirement plan or a Qualified Domestic Relations Order (QDRO). Any property sold after the divorce is finalized will be eligible for tax gains. Each spouse can also exclude $125,000 from taxes.
Spousal and Child Maintenance
Child support is not tax-deductible for the parent responsible for paying it. So it cannot be considered taxable income. On the other hand, spousal maintenance can be deducted from the taxable gross income of the payer. Support that comprises both child and spousal support is called unallocated support, and taxes can be deducted for the spouse making more contributions than the other.
If you hire a Schaumburg tax implications attorney, the fee they ask for will not be tax-deductible in the divorce decree. These are considered marital funds that both spouses have to divide between themselves. It can also be used to pay off one of their debts.
Determining Your Filing Status after a Divorce
If you have just started or completed the divorce process for the year, you need to file your taxes carefully. Your filing status will depend on certain factors, including the date of your divorce and resolution terms. Some of the statuses you may file under, as per your circumstances, include the following:
Married Filing Separately
You can file your tax return separately even if you were still married or as of December 31st. You may have to face a small deduction, but you may not owe as much in taxes later if you file under this status. As an independent filer, you will not be responsible for anyone else. Think of it as a step forward as you prepare to live your life without a spouse.
Married Filing Jointly
If your marriage just ended, filing jointly can feel strange at first. However, this is a necessary step post-divorce since your filing status for the new year will depend on your marital status. If you are still married during that time, you can still file jointly and get benefits for your trouble. This includes a larger standard deduction which is offered to married couples.
If you are divorced as of December 31st, you cannot file jointly or as married. If you don’t have any children or other dependents, you have to file single. In this case, you will be eligible for the same deduction as a married person who is filing separately.
Head of Household
If your divorce was finalized before December 31st, you could still file as the head of household. However, it would help if you had a dependent such as a child to do this. You also have to show that you were responsible for paying for more than half of household costs for the past year. Keep in mind that you can only claim your child as a dependent for tax deduction purposes if you have most parenting time. Individuals who file as head of household get a larger tax deduction than single filers. The figure is lower for a married couple who files together.
Why You Should Hire a Divorce Tax Attorney
Most divorcing couples don’t realize the significant financial burden on their future. You need to factor in those expenses while negotiating terms for your divorce agreement, not after. If you don’t do your due diligence, you may lose money, especially if property and family support tax deductions are ignored.
At this point, you should hire a Schaumburg tax implications attorney who has experience determining tax implications pre and post-divorce. It will ensure a fair outcome for everyone involved if your case goes to trial. If you want, you can also work with a financial planner or even a tax advisor and ensure your attorney has a clear line of communication with them during your case.
An attorney will also ensure that your ex, or their attorneys, will not try and dupe you into paying more than you should. Your legal team will be in your corner, supporting you through thick and thin, therefore you should hire one as soon as possible.
Contact the Law Office of Fedor Kozlov for a Consultation Today
If you are looking for a divorce attorney in Schaumburg that you can work amicably during divorce proceedings, get in touch with the Law Office of Fedor Kozlov today. We will work closely with you to acquire all of the essential evidence that can help us represent you fairly and help you understand the tax implications of divorce.
Every extra dollar you pay to the IRS or the Illinois Department of revenue is money your family cannot have. Each asset that comes to you with a tax burden will make any divorce agreement unfair. We can help you determine your tax implications and negotiate an agreement to ensure you don’t pay more than you have to. Dial (847) 241-1299 for a free consultation, and we will get the process started.
We understand that divorce can be incredibly emotionally draining, and difficult for all parties involved. Your world has turned upside down, and the last thing on your mind are tax implications you may face later. Our experienced and compassionate attorneys are well aware of that state and will take measures to put your mind at ease.
Rest assured that we want to help you create a future for your family or dependents which they deserve. The process will be straightforward and as simple as possible with us at the helm. Besides tax considerations, our team is also highly proficient in negotiating marital properties and distributing them fairly. We will ensure that your best interests are protected even if we have to get aggressive about it.
The longer you wait, the worse it will get for you. Contact us today and start the process so you can get several steps closer to the future you deserve.