Tax Consequences of Divorce in Pennsylvania
Going through a divorce is a complicated and stressful process, and so is completing your taxes. Separating yourself from your partner involves much more than you’d expect, particularly as it relates to taxes. Even though they are legally required, taxes are incredibly complex and challenging to do on your own, especially amid a significant transition like a divorce. A Pennsylvania divorce may result in many tax concerns due to the ambiguous nature of your relationship status and other matters such as asset division and spousal support.
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When distributing marital assets during a divorce, it’s crucial to consider the asset’s value after sale and after taxes. If you don’t, you might not be getting as much as you believe in your divorce settlement. To fully comprehend the effects of divorce on taxes, it is always vital to speak with an experienced divorce attorney. Protect yourself and your assets by talking to an experienced divorce lawyer who may be able to address your inquiries about the tax consequences of divorce.
What Pennsylvania Tax Laws are Affected by Divorce?
Tax repercussions follow any divorce. In Pennsylvania, divorce-related tax regulations are particularly complicated. Depending on the specifics of the divorce, these rules offer various tax brackets, tax shelters, tax requirements, and even tax write-offs. In general, you may anticipate that the various laws will have an impact on your taxes in a variety of ways.
The Tax Cuts and Job Act
Deductions, depreciation, tax credits, and other business-related tax items have changed due to the Tax Cuts and Jobs Act (“TCJA”). The Tax Cuts and Job Act will no longer consider alimony to be income for separation agreements executed on or after January 1st, 2019. Because of this, neither the receiving nor the paying spouse will need to report it on their taxes.
Alimony is still regarded as income for separation agreements entered on or before December 31st, 2018, meaning the recipient spouse must report it on their taxes. The paying spouse may deduct support payments, but they must follow all alimony payment rules.
The Gift Exclusion Tax
The IRS permits gifts between people up to $14,000 under the Gift Exclusion Tax before they must disclose it as potential taxable income. It’s crucial to keep track of the items that your ex has given you and how they have given you things both throughout and after the divorce process. Over the course of a divorce, gifts can accumulate and affect how your property is divided.
What Effects Does the Division of Marital Property Have on Taxes?
The property transfer that occurs when you and your spouse divide your marital assets is not taxable. In other words, it is not taxable income if you get an asset from your spouse. The receiving spouse keeps the cost basis to the degree that stock or property is transferred.
When a couple gets divorced, they must take both the stock’s cost basis and the fair market value (FMV) into account. There may be tax consequences when you sell the item or, in the case of a 401(k) plan, when you withdraw the funds.
How Will Divorce Affect My Child Care Tax Credit?
As divorced parents, you and your spouse must decide who will be claiming tax exemptions for the child care credit. A dependent tax exemption can only be used by either parent, and it is typically the child’s primary custodial parent who claims it.
A federal tax credit, currently in the ballpark of $13,000, is available if one or both spouses complete the adoption process and the child is under the age of 18. Certain fees, including adoption and legal fees, as well as travel costs, are also covered by this credit.
Also, it’s important to know that child support is not taxable income and that the recipient cannot deduct it from their taxes. Child support in Pennsylvania is not considered income and usually has no tax consequences. Both the recipient and the payer of child support are exempt from taxation on the amount paid.
How Will My Divorce Affect the Way I File My Taxes?
If your divorce is not finalized by December 31st, you will still be treated as married for tax reasons. If you finalize your divorce after the new year, you might be able to file your taxes jointly and enjoy other advantages. Each filer’s filing status will change after the divorce is finalized. The marital status as of December 31st determines the filing status for the divorce for that year.
Suppose there are benefits to filing jointly for the final year of your marriage. In that case, the parties to a divorce may wish to time the final decree for the first half of a year because a filer will be regarded as single for the entire year for the year the divorce occurs. Since same-sex marriage has been legal, those who identify as same-sex partners dissolving their marriage will adhere to the same tax regulations and filing requirements as those who identify as heterosexual.
Seek Legal Guidance on Your Tax Consequences From Experienced Pennsylvania Divorce Lawyers
The effect of the separation or divorce on each spouse’s tax responsibilities is a subject many partners ignore. It’s important that each spouse considers factors such as their filing status, how they will both handle deductions, and which spouse will be eligible to claim specific deductions or exemptions once it’s time to file tax returns.
Divorce and taxes are topics too tricky to broach alone, so speak legal guidance from an experienced Pennsylvania divorce lawyer. The experienced divorce lawyers at Rubin, Glickman, Steinberg & Gifford, P.C. aim to save their clients money and protect their assets during and after the divorce. Our award-winning legal team has more than 65 years of experience practicing law and is ready to address any of your legal concerns. Contact us today for a free divorce case evaluation at (215) 822-7575 or complete our contact form.