Pennsylvania couples who are entering the divorce process have a lot on their minds. One thing you might not think about is the tax implications of your divorce decisions. Help ensure that you set yourself up for the best chance of avoiding excessive taxes by following the tips below.
Take a tax standpoint on every asset
Taxes and divorce are two topics that you need to look at in unison. When you go to split up your assets, you need to be thinking from a tax standpoint. Just because you and your former spouse both have IRAs with the same value, that doesn’t mean they’re equal. For example, say one is a traditional IRA and the other one’s a Roth IRA. The person who ends up with a traditional IRA winds up paying more money in taxes down the road because taxes were never taken out of their contributions to begin with. The person stuck with a traditional IRA may pay up to 35% of the value of the IRA in taxes when they go to withdraw the funds.
Determine who gets to claim the children
Traditionally, the custodial parent is the one who gets to claim children on their tax return. Custodial parents are those with whom the child spends the majority of their nights. If you split child custody 50/50, you’re both considered custodial parents. In this case, it’s important to specify who gets to claim the children each year. A common agreement is to switch every other year.
When you go through a divorce, there’s a lot on your mind. While you might not understand the tax implications of your divorce settlement, it’s something you really need to give thought to. To help ensure that you pay attention to all aspects of your long-term future, it’s advisable to hire an attorney.