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Schaumburg Divorce Tax Lawyer

Palatine Divorce and Taxes Lawyer

Helping Clients Understand the Tax Implications of Divorce in the Northwest Suburbs

Divorce can be a complicated process, involving issues such as division of marital property, allocation of parental responsibility, child support, and spousal maintenance. Divorcing couples also need to be aware of how these factors can affect the amount of taxes they pay, the tax exemptions they can claim, and the credits they can receive.

Determining Filing Status

At tax time, ex-spouses who were still legally married as of 11:59 PM on December 31 will need to decide whether they should file jointly or separately for the previous year. Depending on your circumstances, filing jointly may be the best option for both parties. In this case, the marital settlement or divorce judgment should specify how to divide any income tax refund or taxes owed.

If your divorce was finalized prior to 11:59 PM on December 31, you must file as a single individual. If you were the custodial parent of a child for at least six months, you may be able to file as head of household, which can result in a higher tax refund or lower taxes.

Understanding Child Tax Exemptions

Only one parent can claim a child as a dependent on their tax returns, and the custodial parent will often be the one to claim this tax exemption. However, parents may agree to split the exemptions if they have multiple children or alternate the exemptions each year. If a non-custodial parent is going to claim one or more children as an exemption, the custodial parent must submit IRS form 8332 ("Release of Claim to Exemption for Child by Custodial Parent") along with their tax return each year.

Parents are also eligible for a Child Tax Credit of up to $1,000 for each child under the age of 17 they claim as a dependent on their tax return, as well as a Child and Dependent Care Credit for work-related child care expenses for children under the age of 13.

Benefits and Consequences of Marital Assets

The transfer of property from one spouse to another as part of a divorce settlement is not considered a gain or loss as long as it is included in the divorce judgment and takes place within one year after the divorce has been finalized. However, certain assets can come with tax benefits or liabilities. For instance, any gain from the sale of the marital home is taxable, although the first $250,000 can be excluded when filing taxes singly, or $500,000 when filing jointly, as long as the home was used as your primary residence for two of the last five years.

The distribution of funds from retirement accounts or pensions is also taxable, although this can be avoided if the amount is rolled over into another eligible retirement plan or if a Qualified Domestic Relations Order (QDRO) is filed.

Other Tax Concerns

  • Child support payments cannot be claimed as a tax deduction, and they are not considered taxable income for the recipient. However, spousal support (also known as maintenance or alimony) is tax deductible for the payer and taxable for the payee.
  • Property sold following a divorce may be subject to capital gains taxes, although the first $125,000 of this gain can be excluded by each spouse.

Experienced Schaumburg Divorce Tax Attorneys

At Anderson and Associates, P.C., we can help you understand how divorce will affect your finances, including the impact it will have on the taxes you owe and the deductions you can claim. We have over 30 years of experience providing compassionate, effective legal counsel to our clients. Please contact us at 847-995-9999 to schedule an initial consultation.

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