Fill your stocking by doing tax planning! Yes, tax planning may give divorcing couples more holiday dollars.
Holidays are a busy, stressful time of the year whether you are in the process of getting divorced or not. So why add stress by bringing up taxes? Because taking a little time to do tax planning may save you substantial tax dollars.
Some issues to consider are:
Tax filing status
Married couples usually file a joint tax return. It might be better to be divorced by the end of the year so you can file as a single person or head of household, depending on your status. Or, even if you are still married at the end of the year, you might be better off filing separately or, if you qualify, filing as head of household.
Most of us are familiar with the Dependent Exemption, but there are many other credits available for your children that can reduce your tax bill, including the Earned Income Tax Credit, Child and Dependent Care Credit, Hope Scholarship Credit, and Lifetime Learning Credit.
Spousal maintenance or alimony
If properly structured, it is deductible by the person paying and is taxable income to the person receiving. On the other hand, child support is neither taxable nor deductible.
Usually there are no immediate tax consequences to a divorcing couple’s property settlement agreement. However, there may be significant tax consequences down the line. Divorcing couples should consider the tax consequences that occur in the years ahead when they are determining the distribution of assets and debts so that there are no unexpected surprises.
A couple getting divorced can save substantial dollars by doing tax planning. Seek some tax advice and look at the total picture. It pays to plan together so both benefit.