When your marital status changes, so does the way you file taxes and position yourself for future financial planning. Askey, Askey and Associates, CPA, LLC can help you successfully navigate changes ahead.
In the eyes of the IRS, your marital status is determined by your filing status on December 31. So, if you marry on Dec. 31, 2019, you are considered married for the entire 2019 tax year. Divorce on that date, you’re a single taxpayer the entire year.
Filing status – marriage bonus or marriage penalty? Choosing the best filing status available to your situation (Married Filing Jointly, Married Filing Separately, Head of Household, Single, or a Qualifying Widower) can reduce your tax liability. Will your tax liability go up or will it go down if you get married now versus next year? Good question! The answer is highly dependent on various facts and circumstances, and the result may not be what you think.
Ownership of property: Being married affords you a unique option for property ownership, specifically, the titling of such as Tenancy by the Entirety, which prohibits modification of ownership without both spouse’s consent. You should be aware of the ways in which titling can assist in reducing tax implications for the future.
Claiming dependents is a major issue for separated or divorced individuals, and although recent tax law changes eliminated dependency deductions, there are various other tax benefits for those with qualifying dependents. Does your separation or divorce agreement address who can ‘claim’ the children for tax purposes? You must meet certain IRS rules to ‘claim’ a dependent, which may not be crystal clear in situations such as shared custody.
Existing tax liabilities:
Divorcing individuals have options available to protect spouses from some tax liabilities incurred during marriage and those considering combining tax lives should address concerns of what tax liabilities exist prior to the marriage to avoid unpleasant surprises.
Planning for the termination of a financial partnership is crucial. Consider this checklist:
• Inventory your assets, joint or separate — include homes; stocks and bonds; valuable items such as jewelry, antiques, or collections; bank balances; autos; investments, including IRAs & retirement accounts
• Inventory your debts – include mortgages, credit cards, auto loans, and other liabilities
• Retain copies of at least the last two or three years of tax returns
• Know yours and your spouse’s exact salary and income
• Retain paperwork on insurance policies, pensions, and other retirement benefits
Do I pay taxes on that?
• Child support is not taxable income to the recipient, nor is it deductible by the payer.
• Alimony is no longer taxable income for the recipient or deductible by the payer, for divorce decrees effective Jan. 1, 2019, onward. Alimony and qualifying payments awarded prior to Jan. 1, 2019, are not affected and will retain their status as taxable to the recipient and deductible to the payer.
• Property settlements are not taxable. The moving of assets between separating spouses does not trigger gain/loss, income, or deductions. However, tax exposure can occur later when an asset is sold based on values established at the time of the divorce settlement.
If you would like more information, Askey, Askey & Associates, CPA, has full-service offices in Leonardtown, MD, at 23507 Hollywood Road, Leonardtown, MD 20650, and La Plata, MD, 105 Centennial Street, Suite D, La Plata, MD 20646. Visit their website at www.aaacpa.com and find them through their Lex Leader Member Page, Facebook or LinkedIn.