The following information is intended for educational purposes and you should speak with your CPA, Accountant or Tax Adviser before taking action.
Divorced taxpayers tend to focus on tax issues related to children and alimony. However, when trying to figure out what you should pay Uncle Sam, the divorced taxpayer should be aware of the following:
1. What you can and cannot deduct: Generally you cannot deduct legal fees and court costs for getting divorced, but you may be able to deduct legal fees for tax advice, appraisers, and accountants all in the context of a divorce, as well as for fees for obtaining alimony.
2. Property Transfers: There is generally no tax consequence for property transfers between spouses (including those into trust) provided that such transfer is to a spouse and is “incident to a divorce.” A property transfer is “incident to a divorce” if the transfer occurs 1 year after the date that your marriage ends and is related to the ending of your marriage.
3. Form W-4: Remember when you become divorced or separated to file a new Form W-4 to ensure your withholding allowances are properly reflected.
4. Tax Liability: You are jointly and individually responsible for any tax, penalty or interest due on a joint return for tax years before you were divorced even if your separation agreement states that your former spouse will be responsible for any outstanding amounts due on filed joint returns. A spouse may be able to seek relief under the innocent spouse rule, equitable relief, etc.
5. Sale of Jointly-Owned Property: If you and your spouse sell jointly owned property, make sure that you report your share of the gain or loss from the sale. In order to determine your share of jointly owned property you will have to refer to the state law administering ownership of your property.
As you prepare to file your taxes, take some time to sit down with your tax adviser to ensure you receive the full tax benefit of your alimony payments. IRS Publication 504: Divorce or Separated Individuals 2013 can further assist you as you prepare to file your taxes.
I wish you all the best,
Scafidi, Juliano & Hurd, LLP
310 Washington Street, Suite 201
Wellesley, Massachusetts 02481
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