Bowling Green State University reported a 14.56 divorce rate in the United States per 1,000 married women. Divorce is a life-altering event for many.
Amid the emotional and logistical changes, it is possible to forget about some of the more routine aspects of life. However, overlooking the tax implications could be a mistake. After a divorce, several potential tax concerns should be on your radar.
Change to filing status
Your filing status will change if you had filed jointly with your spouse. You will now need to choose between single and head of household when filing your taxes.
The division of assets during divorce can trigger capital gains taxes if you decide to sell properties or investments. It could also result in deductions. For example, selling your marital home as part of the divorce settlement might allow you to benefit from capital gains tax exclusions. Being aware of these potential implications will help you make informed financial decisions.
During the divorce, you may have divided retirement accounts, like 401(k)s and IRAs. There may be tax consequences for these decisions, including penalties.
Credits and deductions
The question of who can claim dependents for tax purposes is something you must address to prevent disputes in the future. It will help ensure both parents receive eligible tax benefits as well. You also need to reevaluate your eligibility for various tax credits, such as the Child Tax Credit or the Earned Income Tax Credit, based on your arrangements for claiming dependents.
Divorce brings significant life changes, including potential tax implications, that require attention and planning. By staying informed and proactive, you can protect your financial well-being and make informed decisions regarding your taxes in this new chapter of your life.