Dissolution of marriage creates an enormity of changes, and it is no surprise that taxes will be affected. Failing to prepare for tax consequences may cause significant headaches when filing post-divorce returns. In California, taking some proactive steps can help ease the tax burden of a high asset divorce, and keep some of that hard-earned money in the bank.
Changes in filing status often result in higher tax bills, especially if the filer is the household breadwinner. For example, a combined household income of $150,000 would pay 19 percent in federal taxes or $28,977.50. A single person with an annual salary of $100,000 will pay $20,981.75 in federal taxes or almost 21 percent.
Divorce could disqualify a noncustodial parent from the head of household credit and other dependent-related tax breaks. Losing these deductions can raise a tax bill by several thousand dollars. Filing status changes may also allow for many tax breaks such as a Savers Credit, which gives a tax credit for retirement savings contributions, Earned Income Credit and sometimes deductions for IRA contributions.
It is likely that one or two tax breaks will be lost because of filing status change due to a divorce. Search for new deductions such as a charitable contribution, or if taking college courses can help with a better job or promotion, grab the Lifetime Learning Credit. It may also be in a divorced individual’s best interest to rely upon a tax professional for the first post-divorce tax return. In California, if someone is struggling and has questions regarding financial changes associated with a high asset divorce, he or she may benefit by contacting an attorney to guide them through the legal process.
Source: fool.com, “Getting Divorced? Your Taxes Could Be Crushing — The Motley Fool”, Wendy Connick, Dec. 11, 2017