Video | Divorce & Taxes, Common Questions About Filing Taxes in 2021

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Video Transcript:

Freya Robbins:           Hello. You know what? I just found out that May 17th is our new filing day. So we have an extension this year for families who are filing their individual taxes. You have an automatic extension, you don’t have to file by April 15th. You do have to file by May 17th.

                                So what do taxes and divorce have in common? Because, it doesn’t seem like they have anything in common. Well, actually they do. We avoid both, right? Who wants to pay taxes and who wants to get a divorce? Well, most people would rather not have a divorce, and I don’t blame them. People spend far too much money litigating a very stressful situation and spending money that they don’t even have to lose on divorce. Occasionally I’ll have a mediation client who’s opposed to divorce from a moral or religious perspective. I know that’s challenging to take a stand and know that one way or another there is going to be a divorce, if one wants one, they can litigate it. But I would suggest that you find a way to work things out so that you can come up with some agreement that you both feel comfortable with.

                                And taxes, well, taxes are taxes and no one likes to pay them, but it’s upon us soon. The best thing we can do is make sure that we’re paying the least amount so that we can lower the blow, if you will. So the area we’re going to talk about in this video, regarding taxes, is we’re going to talk about taxes in terms of the deduction for children and then we’re going to about talk about taxes as it relates to alimony.

                                So one thing I wanted to remind you of if you weren’t sure, is that your filing status is determined based on your marital status at the end of the year. So if you’re divorced on December 30th, 2021, you cannot file as a married couple, okay? But if you are single in June of 2021, you can’t file anything but single or head of household. Some couples actually stay married through the end of the year and then finalize it in January just so they can benefit by staying a married couple for tax purposes because you pay a lower tax rate as a married couple than you do as a single person or as head of household.

                                Now, as a married couple, you are entitled to file as a single person. So you can be married, but file single. I hope I explained that, that was a bit confusing. But anyway, if there are no minor children, then you will file as single. If you two have minor children, let’s just say you only have one. So that one, you have to alternate. So one takes the child in even years, the other one takes them in odd years. As head of household for 2021, you will be able to take a deduction of $18,800 regardless of how many children. So it doesn’t make any difference how many. You could have a boatload, but all you need is one. So if you only have one, alternate. If you have two, you should divvy up the two. One takes one, one takes the other. When only the youngest is left, then alternate that one every other year, so you can both take advantage of that.

                                The deduction for 2021 for single with no children is 12,550, and the deduction for married is 25,100, this year. Also, keep in mind your older children who are either in high school or in college, but you are still providing half of their care, and if they earn less than $4,300, just to say they have a little part-time job or summer job, they earn less than $4,300, you can still claim them. Don’t forget about that.

                                Now, the tax situation regarding alimony changed in 2017. The rule changed in 2017, which went into effect in 2018, and that was that alimony is no longer deductible for the payor, and it is not taxable to the payee. It’s tax neutral, so really the person paying the alimony is the one who has to pay the taxes. So let me give you an example of someone who’s paying, Well, let’s just say they earn $150,000 and lets just say their effective tax rate is 22%. Let’s also say that they’re paying $2,000 a month in alimony. For that person to earn enough money to pay $2000, essentially, they have to earn $2,564.10 every month in order to pay that $2,000. And if you looked at that same number annually, it would take them $30,769.20 per year they have to earn in order to pay $24,000. So keep that in mind. I think sometimes the person receiving the alimony doesn’t think about that. I think it’s important for us to understand what it takes for one another to do the right thing for each other and a lot of times people don’t understand that.

                                So as tax time is upon us soon, if you haven’t found an advisor that you trust to do your taxes, I would recommend that if you want to this year and you need someone, please give us a call at (941) 366-0202. We’re happy to give you some referrals of some names of some people that could help you, that are some of our trusted advisors.

                                And if you don’t have an accountant and you think you don’t need one because you don’t make a lot of money, you don’t have to be wealthy in order to need an accountant, it’s a wise thing to do. And if you don’t have one now, certainly think about retaining one as soon as the tax season is over, when they’re not so busy and then you’ll have one ready for next year. You can talk with your accountant, strategize about things that you need to for your own financial future.

                                So I hope this was helpful. It was great to see you here. And if you have any other information, see us on our website at zollingermediation.com.