Navigating the financial landscape of marriage and divorce involves understanding the various tax implications. Both life events significantly alter how individuals file and manage their taxes. This blog explores key tax considerations for couples who are planning to marry or going through a divorce.
Tax changes after marriage
Marriage impacts taxes in several distinct ways, including:
- Filing status: Married couples can choose to file jointly or separately. Filing jointly usually provides more tax benefits, including higher income thresholds for tax brackets and deductions.
- Standard deduction: Filing jointly essentially doubles the deduction amount, which can lower taxable income.
- Tax rate: It is also wise to review potential changes in tax bracket due to combined income
Evaluating these factors can help manage financial expectations and planning for future tax years.
Tax considerations during divorce
Divorce brings significant changes to an individual’s tax situation. It can impact taxes in the following ways:
- Alimony: Tax law changed in 2019. As such, alimony payments in divorces finalized January of 2019 and beyond are no longer deductible for the payer, nor are they taxable income for the individual receiving the alimony payment. It is important to keep this in mind when negotiating alimony amounts.
- Child support: In contrast, taxes do not apply to child support. It is neither deductible by the payer nor taxable to the recipient.
- Property: Determine the tax implications of division of property, including the family home, retirement accounts, business interests, and other high value assets.
Properly addressing these issues can prevent unexpected tax liabilities and financial challenges post-divorce.
Marriage and divorce are significant life events that can greatly affect your tax liabilities and benefits. Understanding and preparing for these changes can lead to better financial health and compliance with tax laws.