Getting Divorced and Your Taxes

Last week in, Getting Married and Your Taxes, we explored what to do with your taxes as you tie the knot.  But what do we need to consider when saying, “I Don’t”? Among the changes seen with the December 2017 passing of the Tax Cut and Jobs Act (TCJA) are impacts to couples who divorce after 2018.  We discussed the Tax Cuts and Jobs Act in September and shared financial tips for those going through divorce in July with Starting Over After Divorce.  Here we will take a more indepth look at the specific changes the TCJA means to divorced taxpayers, along with financial considerations from a tax perspective.

The TCJA plans to raise billions in revenue for the government over the next several years.  To do so, many groups have been affected including those filing for divorce after the end of 2018.  For nearly a century, a deduction has been allowed to the spouse paying alimony. For all divorces finalized beginning January 1, 2019, alimony will not be tax deductible.  This could have the unfortunate consequence of leading to spouses not agreeing to paying alimony or settling for a much lower payment. Most often, alimony is paid to the woman in the divorce.  This tax change will therefore have a major impact on the financial livelihood and future of women.

An additional unfortunate consequence of this change is that many couples are speeding up divorces to be sure that they are completed prior to the end of 2018.  This can lead to hasty decision making and not keeping everyone’s best interest in mind.

There are additional tax considerations to make when filing for a divorce beyond those relevant to the TCJA.  Start to create your own statement of personal worth. To do so, gather paperwork for all of your assets and accounts.  This year would be a good one to call upon a professional tax preparer to help with your annual tax returns.

If you are planning to sell your home, it is best to do so while your still married for tax purposes if the home value has increased by more than $250,000.  Capital gains up to $500,000 are tax exempt for those filing as married but only up to $250,000 for single filers.

It is just as important to report address and name changes to employers, the IRS, and the post office when you get divorced as it is when you get married. Make changes with your employer if your W4 withholdings change.  Many of the considerations for newly wed couples apply in cases of divorce.

Going through a divorce hurts, but being prepared financially can take a little bit of the sting out.  Let our office know if you need help with tax questions during this difficult time. We are here to help!

 


Summer Day Camp & Your Taxes

Child and Dependent Care credit may cover more than you think come tax season.  If your child enjoys summer day camps, from arts and crafts to water polo, those expenses generally count as allowable expenses.  The credit was created as a way to help working parents. It serves to reduce the amount of federal income tax due and it varies depending on earned income.  There are several requirements to consider, but many taxpayers overlook these deductions when preparing for tax season. We discussed the specifics of dependent care in Whom May I Claim As a Dependent, and the following provides more specific information for summer day camps.

 There are several requirements to claim day camp expenses under the Child and Dependent Care credit.  Campers must be under the age of 13 and the camp cannot be an overnight one. However, you may select any day camp that you like, even if it’s not the least expensive.  The purpose of sending your child to the camp must be to provide care for the child while parents are working. In this way, camp expenses are comparable to daycare or babysitting fees paid to allow parents to work.  The camper must be you or your spouse’s direct dependent. You also need to pay for the camp above the table. While camp expenses are covered, equipment needed to participate in the camp does not count. If either parent is a stay at home parent or otherwise not actively seeking employment, the family does not qualify for this credit.    Finally, credit is not available if the day camp provider is your spouse, dependent, or the parent of the child.  

The tax credit allowed is 35% of expenses up to $3,000 for one child and $6,000 for 2 or more campers.  At tax time you will need a federal form 2441 attached to your 1040, 1040A, or 1040NR.  In order to claim this credit, you cannot use 1040EZ forms.

To see if the Child and Dependent Care credit is applicable to summer camp fees you may have paid this summer, see IRS Publication 503, Child and Dependent Care Expenses, for more information.


Getting Married and Your Taxes

If you tied the knot in 2018, there are several things you can do now, to make tax season a lot easier.

Before you file your return, be sure to report name changes to the Social Security Administration.  This can be done with a Form SS-5 Application for a Social Security Card. You will also want to report address changes to the US Postal Service, IRS, and your employer.  The IRS will need a completed Change of Address Form 8822. You can stop in at your local post office or visit their website to complete your address change with them.  This step will help to ensure that you receive all of the necessary tax paperwork in time to complete your return and you won’t have to chase it down next year. Remember, you are considered married for the entire tax year, regardless of what date you say “I Do”.

You now have more than 1 person to consider with your W4 paycheck withholding.  Be sure to use the Withholding Calculator to verify which withholding status is best for your new situation.  Then follow-up with your employer to change if needed.

There are some definite positives to be realized through marriage from a tax perspective.  We reviewed many of these advantages in our post Married….the Pros and Cons of Filing Separately.  Filing with a spouse allows a greater deduction for charitable contributions made throughout the year.  Along the lines of charity, you are legally allowed to leave any amount of money to your spouse without estate taxes being inflicted. Similarly, you may give cash or property gifts without worry of gift taxes.  Filing married usually leads to higher returns, takes less time than filing 2 returns, and generally costs less than filing 2 returns. With those larger returns, you can pay off debt, invest some in an IRA, or any of the countless options we shared in Spending Your Refund. Some additional perks include being able to claim two personal exemptions and a higher standard deduction.

There are of course some negatives to consider, as with anything.  Filing married makes you responsible for your new spouse’s old debt.  It will be harder to deduct for medical expenses because of your higher level of combined income.  While these risks should be considered, they’re certainly no reason to prevent walking down the aisle.  Just do your research and be prepared ahead of time……and congratulations!


Jesse Holloway Graphic Designer for Small Business

If you run a small business, advertising is essential.  It serves to help you look professional and get your name out there.  It is important to take the time to put yourself in front of people in your target market. Experienced graphic design and marketing professionals can help you through this process.

This is where Jesse Holloway and Akusuo can help.  Jesse has been a graphic designer for 12 years and in marketing for 5 years. His training began locally as he attended PCA&D for graphic design.  Prior to starting his own business he worked at Clipper Magazine.

Jesse enjoys coming up with creative solutions to help small businesses achieve a professional look. To meet this need, he offers graphic design and marketing services. He has also been known to help out with 3D modeling of products.  One unique part of Akusuo’s business model is their willingness to barter services. Trading services is how Jesse and ITP Taxes LLC were first introduced. Both businesses were at the beginning stages of development and the exchange of services was a great start for both organizations.

To find out more about how Jesse and Akusuo can help your business, Jesse can be reached via email at jesse@akusuo.com.

 

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“ITP, LLC is supporting local small business owners through this post.  The experiences described are personal to particular users, and may not necessarily be representative of all users of the products and/or services.  We do not claim, and you should not assume, that all users will have the same experiences. Your individual results may vary. We are not affiliated with the organization referenced and are not paid or compensated for this publication.”