Taxes and Divorce
You may be considering filing divorce, but you are unsure of how to separate your taxes and liability. This dilemma should not stop you from filing for divorce if you believe it is in the best interest of your family. The following are a few tips to give you peace of mind before you contact a divorce attorney.
One option that is available for the 2011 tax year is to file your income tax return separately. This action will not save you or your spouse money, and it may even cost you quite a bit more, but it can save you some financial hassle. This action could also release you from financial issues caused by your spouse if they have failed to report their income properly or taken inappropriate deductions.
Tax exemption status can be a sore spot for divorcing couples. Obviously, neither parent wants to give up this benefit, but the financial benefit is probably not worth taking legal action. Many states award the exemption to the non-custodial parent if they agree to make support payments on time throughout the year. Many parents will give up the exemption to guarantee that their payments are received each month.
Another option is to divide the tax exemption. The divorce decree may allow the wife to claim the oldest child as a deduction for all tax functions. The husband will be permitted to claim the youngest child as a deduction for all tax functions (provided that all payments are made on time). Medical expenditures and all other financial responsibilities related to each child can also be divided.
Keep in mind the IRS considers alimony and child support differently. Alimony is counted as taxable income to the receiving spouse and can be deducted from the paying spouses total income. Child support is not counted as taxable income to the recipient and is not able to be deducted by the spouse who pays it. Therefore, the spouse who pays support wants as much as possible to be in the form of alimony, and the receiving spouse wants as much compensation to be paid as child support.
One option to solve this problem is to have the spouse with the higher income agree to pay extra expenses for the other spouse for a fixed term. Some of these items can include: auto payments, mortgage payments, and insurance. The spouse who pays may need to increase payments to compensate their spouse for increased taxes, but by doing this both partners will end up with more money in their pockets.
Divorce is often a time of uncertainty and financial stress. Even if this is the roughest period of your life, the IRS will still expect you to file your tax return on time. You need to be ready to make informed decisions regarding tax money you owe throughout the process of your Texas divorce. Contact a Texas divorce attorney to help evaluate your financial options.