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Tax implications may impact a Texas divorce

Getting divorced can have an impact on many facets of one's life. Tax time is one of them. A few tips may help with navigating the tax season following a Texas divorce.

If the divorce happened last year, even if it was the very last day of the year, one can file as a single person for the 2016 tax year. One sticking point for divorced couples with children that has to be addressed is who will claim them as dependents. This has important ramifications due to the related deductions and credits that come with having dependent children.

Another area that can cause confusion during tax time following divorce is how liquidating assets may affect one's return. For instance, if the marital home is highly valuable, the tax bill might be significant for the party who keeps the home. Some disparities also exist in how assets in 401(k) plans versus other types of retirement plans are treated at tax time. Alimony payments furthermore have tax implications, with alimony generally being taxable by the person receiving it and deductible by the individual paying it.

The divorce process can naturally be overwhelming due to the many financial issues that must be addressed, ranging from asset division to the distribution of property. Making the wrong choices during this type of family law proceeding can unfortunately have negative implications financially, particularly when there are tax consequences. However, the guidance and support of a Texas divorce attorney can be helpful in making informed decisions that reflect immediate and long-term goals.

Source: CNBC, "How to report major life changes to the IRS", Jessica Dickler, Jan. 25, 2017

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