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727 - How Can I Save on Taxes?Tax issues in divorce can have big dollars tied to them. It's usually easy to structure your divorce in a way that helps keep as much money as possible in your pocket, if you'll simply think through the tax issues while you're negotiating with your spouse. Once you understand them, you can structure your divorce settlement in a way that works out better for both of you. For years, divorcing couples struggled with the issue of capital gains on the sale of their house. The law has changed on capital gains, though. For any sale of a principal residence now, a single taxpayer can exclude from tax up to 250 thousand dollars of gain on the sale of the home where he or she has lived for two of the last five years, and a married couple can exclude up to $500,000. This exclusion is available as often as once every two years. That means that for the vast majority of taxpayers, capital gains on the sale of the house is just no longer an issue. The area where people in divorce can still get into trouble with capital gains is if they own a vacation home or business property or other property they haven't used as their principal residence. Capital gains can be a big issue here, so big that they can make property worth a great deal less than it would otherwise appear at first glance. Now when it comes to support, there's a difference in the treatment of alimony and child support. Alimony is taxable to the person who receives it, and tax‑deductible for the person who pays it. Child support is not taxable to the person who receives it, and not tax‑deductible for the person who pays it. This means there are some planning opportunities available for the payment of alimony, if you'll think them through while you're negotiating with your spouse. If you have young children, you've probably heard about ling sure you get the exemption for the children. Well maybe, maybe not. The first and most important thing you need to know about the exemptions is what they're worth to you, and what they're worth to your spouse. You can hear more about that in program number 733, "Who Gets the Exemptions?" The value of the exemption peaks at about $1,750 per child per year, when your adjusted gross income is between 40 thousand and 70 thousand dollars. For incomes above that and below that, the exemption is worth less. For example, when your income is 25 thousand dollars, the exemption is worth about 1.450 dollars per child per year, and when your income is 90 thousand dollars, the exemption is worth about 1100 dollars per child. You can read all about the value of the exemption to you at Divorceinfo.com. The exemption belongs to the parent who spends more than half the year with the child. It does not depend on who provides more than half the support for the child. But that exemption can be traded back and forth. By all rights, the parent who can benefit the most from the exemptions should take them, and if necessary compensate the other parent. If your spouse won't reason with you on this, though, just let it go. It's probably not worth fighting about, and it's almost never worth paying lawyers to fight about it. Alabama Family Law Center serves clients who need to get through divorce and who are able to be reasonably cooperative. The goal is for both spouses to survive divorce and move on with their lives with some money in their pockets and their dignity intact. No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers. If you'd like to make an appointment with me, call 205-979-6960. Or you can click here to return to the Divorce Line. |
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