Written by Jonathan Breeden
After filing taxes together as a married couple, you may be confused about how to file alone following a divorce. It can be complex to file taxes after a divorce in North Carolina. There are some key concepts you need to know.
A knowledgeable divorce lawyer can help you end a marriage and consider the critical implications of that separation on your taxes. You need to consult someone who knows North Carolina’s divorce and tax law.
Call Breeden Law Office at (919) 661-4970 for a consultation of your case.
When you were with your spouse, you likely filed your taxes as a married couple. There are many benefits to filing your taxes as a married filing jointly, including an increased standard deduction. But you still have many tax options that can be beneficial after a divorce.
After a divorce, you can file your taxes in the following manner:
Some different deductions and benefits exist for each filing category. In most cases, filing as head of household is the most beneficial after a divorce.
When you file taxes with children, you can qualify for several credits and/or deductions, especially if you file as head of household. Some of the benefits you may be able to claim with children include:
Who receives the tax benefits depends on the child custody arrangement and divorce agreement. In most cases, you must be a custodial parent or have primary physical custody. Some divorce agreements or parenting plans allow each parent to claim the child in different years.
Child support is also a consideration on taxes after a divorce. The payer cannot deduct child support payments, which do not count as income for the receiving parent. However, the IRS may offset a tax refund for unpaid child support.
Alimony is no longer a deduction on the payer’s taxes according to the Tax Cuts and Jobs Act of 2017 (TCJA). It is also not counted as income for the spouse who receives payments.
This new alimony rule applies to divorces and legal separations after December 31, 2018. It also applies to any divorce or separation that occurred on or before December 31, 2018, but modified after that date if the modification indicates that TCJA amendments apply.
Spousal support and alimony established in agreements before January 1, 2019, is deductible from income by the payer. It is also taxable income from the receiver of payments.
The equitable distribution of property can be complex in North Carolina. You should consider the tax repercussions of acquiring property and assets in the divorce.
When determining the division of marital property, you should:
For most people, a home is the most valuable marital asset. For this reason, resolving who will get the house and other high-value items in a divorce is complicated. However, in some cases, you can sell the home and divide the proceeds, or one spouse can buy out the other. No matter which option you choose, there are tax implications.
It’s important to remember that whoever is listed as the owner of the home on the date that property taxes are reported will be responsible for paying those taxes, regardless of your divorce agreement.
Deciding whether to sell or keep property after a divorce isn’t just about ownership—it can also affect your taxes.
If You Sell:
Selling a home or other assets might mean paying capital gains tax. You may qualify for tax breaks if the property was your primary home, but selling stocks, rental properties, or other assets could result in taxes.
If You Keep the Property:
Holding onto a home or other valuable assets comes with long-term costs, such as property taxes and maintenance. If you later sell the home, you might owe taxes on the profit.
Before making any decisions, it’s important to understand the financial impact and tax consequences. A lawyer can help you make the right choice based on your situation.
In a divorce, spouses must deal with other valuable assets, including retirement accounts, such as Roth IRAs, 401(k)s, and 403(b) funds. These retirement accounts are typically treated as marital property and must be divided equitably in a divorce.
Vesting schedules for employer-sponsored pensions and retirement accounts can significantly impact the overall value of an account at the time of separation and going forward. For example, if the account is only 25% vested upon divorce but becomes 100% vested later, this will have tax implications.
It’s best to avoid splitting retirement accounts in a separation agreement. Instead, you might consider buying out other assets and one person retaining the retirement account to avoid the negative tax repercussions of withdrawing early.
Divorce can bring unexpected financial challenges, including tax debt. If you and your ex filed joint tax returns while married, both of you may still be responsible for any unpaid taxes. Even if your divorce agreement says your ex should pay, the IRS can still come after you.
To manage tax debt after divorce, you can:
Ignoring tax debt can lead to serious problems like wage garnishment or property liens. A divorce lawyer can help you navigate these issues and find the best solution.
Filing taxes after a divorce can be tricky, and mistakes might catch the IRS’s attention. Common problems include filing the wrong status, claiming dependents incorrectly, or reporting income inaccurately.
To avoid tax trouble:
If the IRS contacts you about your taxes, it’s important to respond quickly and seek help from a lawyer who understands divorce and tax issues.
When figuring out taxes after a divorce, your best option is to contact a lawyer familiar with all relevant laws. You need someone to help you determine how your separation agreement will affect your taxes in the future. Don’t leave it to chance.
Although the goal is always an equitable distribution, a lawyer can ensure you consider tax implications. You don’t want to end up with a property you cannot pay taxes on.
The legal professionals at Breeden Law Office can help you understand your options for the division of property, spousal support, and other elements of divorce that can significantly impact your taxes. Contact us today at (919) 661-4970 or use our online contact form to reach out and schedule a consultation.