Are you going through a divorce in Austin? If so, you probably know that the proceedings can take an emotional toll on both you and your family. During this trying phase, however, it’s important to ensure that along with things like custody and child support, you are also addressing tax related issues.
If you are currently negotiating with your ex, have an open dialogue now so that tax headaches don’t rear their ugly heads sometime down the road. It is also advisable to sit down with a tax professional so that you can explore all your options to reduce taxes.
Some of the key aspects of divorce and tax law are listed below.
As of December 31, 2014, if you are still married, you can file jointly with your soon to be ex-spouse. If your divorce happened during 2014, you can file as the single head of your household to avoid bigger tax breaks. In order to do that, you will need to meet the following criteria:
- Your children must have lived with you for more than half the year
- Your ex must agree that it’s OK for you to claim your children as dependents
If you receive alimony, it’s important to note that you will be the one paying taxes on this income. If you are the one paying alimony to your ex, you are eligible to receive a tax deduction. These tax guidelines only come into effect provided they have been detailed in the divorce agreement, which must be signed by both parties.
Custody of Your Children
If your children have been living with you for more than half the year, you have a legal right to claim them. Although, both parents can decide out of court, with regard to who seeks custody of the children. If the parent with the higher earnings is earning a substantial sum of money (and if they qualify for Alternative Minimum Tax), then that individual can let the other parent claim the children. For the 2014 tax year, this amounts to $3,950 per child.
Medical expenses are typically claimed by the parent who pays for the health insurance of the child.
401 (K) Investments
While withdrawing funds from your 401(k) to give to your ex, you should note that the sum is not only taxable but that you will also have to pay a penalty for early withdrawal. There is however another way to work around this problem. The money transfer can be made under a Qualified Domestic Relations Order (QDRO), which prevents both parties from having to pay taxes.
The tax on this income is borne by the payer.
Regardless of who pays the mortgage or who lives in the house, the spouse who obtains ownership of the house becomes eligible to make claims for mortgage interest deductions. In the scenario where both spouses jointly own the house but only one of them lives there, the mortgage interest deduction can then be split by both parties.
Home Capital Gains
If the primary residence is being put up for sale, individuals filing as a single person. are allowed to shelter $250,000 in profits. In the case of married couples who filing jointly, you can avoid taxes of up to $500,000. Couples planning on getting a divorce can benefit from these tax breaks, if they plan their home sale and divorce accordingly. In order to take advantage of these tax breaks, however, you are required to have lived in the house for a minimum of 2 years out of the last 5.
Are you in need of an Austin divorce attorney? If so, please don’t hesitate to contact the divorce attorneys at Lyttle Law Firm in Austin, Texas. Call our experts today at 512-215-5225.