Tax Tips - Individual Archives - Page 2 of 8

The advantages of a living trust for your estate plan

June 5, 2025/in News, Tax Tips - Individual/by Betty Kim

Lately, I’ve found myself attending more funerals than I ever expected at this stage in life — and with that comes a wave of questions from friends, clients, and family about what happens when a loved one passes. It’s emotional, complicated, and often filled with more questions than answers.

One thing that can make a big difference is having a living trust in place. It’s not just about tax savings — it’s about keeping things simple, avoiding probate, and protecting your family’s privacy. This week’s article dives into what a living trust is, how it works, and what pitfalls to avoid.

It’s not just for the ultra-wealthy, and with the estate tax exemption likely changing soon, it may be a good time to revisit your plan.

If this has been on your mind or if you’re not sure where to start, take a moment to read the article below — and let us know if we can help to navigate this with you.

That said, even if you believe you don’t need to worry about estate planning because of the current federal estate tax exemption ($13.99 million per individual or $27.98 million for married couples in 2025), it’s worth thinking again. Even with this substantial exemption, creating a living trust can offer significant benefits, especially if your goal is to avoid probate and maintain privacy.

Here are some answers to questions you may have about this estate planning tool.

What’s a living trust?

A living trust — also known as a revocable trust, grantor trust, or family trust — is a legal entity that holds ownership of your assets during your lifetime and distributes them according to your instructions after your death. Unlike a will, a living trust allows your estate to bypass probate, which is the often lengthy and public court process of settling an estate.

How does a living trust work?

You begin by creating a trust document and transferring ownership of specific assets to the trust. These may include:

Your primary residence,
Vacation properties, and
Valuable personal items like antiques.

You’ll name a trustee to manage and distribute the assets after your death. You can serve as the trustee while you’re alive and legally competent. After that, you may appoint a successor trustee — such as a trusted family member, friend, attorney, CPA, or financial institution.

Because a living trust is revocable, you can amend or cancel it at any time during your lifetime.

What are the tax implications?

For federal income tax purposes, the IRS doesn’t treat the living trust as separate from you while you’re alive. You’ll continue to report all income and deductions from the trust’s assets on your personal tax return.

However, under state law, the trust is recognized as a separate entity. When structured properly, this allows your estate to bypass probate, helping to ensure a more private and efficient distribution of your assets.

Upon your death, assets in the trust are generally included in your estate for federal estate tax purposes. However, any assets passed to a surviving spouse who’s a U.S. citizen qualify for the unlimited marital deduction, which exempts them from estate tax.

It’s also important to note that the current high federal estate tax exemption is set to expire at the end of 2025, unless Congress extends it. Under “The One, Big, Beautiful Bill,” which recently passed the U.S. House of Representatives, the federal gift and estate tax exemption would be increased to $15 million per individual in 2026. This amount would be permanent but annually adjusted for inflation. The bill is now being considered by the Senate. Keep in mind that the pending legislation could change.

Are there any common pitfalls to avoid?

While a living trust is a powerful tool, it’s only effective when properly executed. Here are some common mistakes to avoid:

Outdated beneficiary designations. The beneficiaries named on retirement accounts, life insurance policies, and brokerage accounts override your trust. Make sure your designations align with your overall estate plan.
Jointly owned property. Real estate held as “joint tenants with right of survivorship” automatically passes to the surviving co-owner, regardless of what your trust says.
Failing to transfer assets. Simply creating a trust isn’t enough. You must formally transfer ownership of assets to the trust. Failing to do so means those assets may still be subject to probate.

When is more planning needed?

Although a living trust helps avoid probate, it doesn’t reduce estate or inheritance taxes. If your assets exceed the current exemption or if state estate taxes apply, additional strategies (such as irrevocable trusts, charitable giving, or gifting) may be necessary.

Not a one-size-fits-all solution

A living trust is an estate planning tool that can simplify the transfer of your assets, protect your privacy, and avoid probate. However, it’s not a one-size-fits-all solution. To make the most of your estate plan and stay ahead of changing tax laws, consult with us or an estate planning attorney.

Digital assets and taxes: What you need to know

May 28, 2025/in News, Tax Tips - Individual/by Betty Kim

As your trusted CPA, I want to highlight that digital assets have become a major focus area for IRS enforcement. We’ve recently seen a noticeable rise in IRS notices targeting clients who either overlooked reporting digital asset transactions or inaccurately reported them. Accurate and thorough reporting is now more critical than ever.

Remember, transactions involving digital assets—including cryptocurrencies, stablecoins, and NFTs—must be carefully documented and reported. Common reportable events include selling or exchanging digital assets, receiving them as payment, and converting them into cash.

Encore Partners LLP has successfully managed several cases involving digital assets, helping clients navigate complexities and correct reporting errors, thus minimizing potential penalties.

If you’ve participated in digital asset transactions and have questions or concerns about compliance or reporting requirements, please contact us directly.

For comprehensive guidance on digital asset reporting and staying compliant with IRS guidelines, see the detailed information below.

The definition of digital assets

Digital assets are defined by the IRS as any digital representation of value that’s recorded on a cryptographically secured distributed ledger (also known as blockchain) or any similar technology. Common examples include:

Cryptocurrencies, such as Bitcoin and Ethereum,
Stablecoins, which are digital currencies tied to the value of a fiat currency like the U.S. dollar, and
Non-fungible tokens (NFTs), which represent ownership of unique digital or physical items.

If an asset meets any of these criteria, the IRS classifies it as a digital asset.

Related question on your tax return

Near the top of your federal income tax return, there’s a question asking whether you received or disposed of any digital assets during the year. You must answer either “yes” or “no.”

When we prepare your return, we’ll check “yes” if, during the year, you:

Received digital assets as compensation, rewards or awards,
Acquired new digital assets through mining, staking or a blockchain fork,
Sold or exchanged digital assets for other digital assets, property or services, or
Disposed of digital assets in any way, including converting them to U.S. dollars.

We’ll answer “no” if you:

Held digital assets in a wallet or exchange,
Transferred digital assets between wallets or accounts you own, or
Purchased digital assets with U.S. dollars.

Reporting the tax consequences of digital asset transactions

To determine the tax impact of your digital asset activity, you need to calculate the fair market value (FMV) of the asset in U.S. dollars at the time of each transaction. For example, if you purchased one Bitcoin at $93,429 on May 21, 2025, your cost basis for that Bitcoin would be $93,429.

Any transaction involving the sale or exchange of a digital asset may result in a taxable gain or loss. A gain occurs when the asset’s FMV at the time of sale exceeds your cost basis. A loss occurs when the FMV is lower than your basis. Gains are classified as either short-term or long-term, depending on whether you held the asset for more than a year.

Example: If you accepted one Bitcoin worth $80,000 plus $10,000 in cash for a car with a basis of $55,000, you’d report a taxable gain of $35,000. The holding period of the car determines whether this gain is short-term or long-term.

How businesses handle crypto payments

Digital asset transactions have their own tax rules for businesses. If you’re an employee and are paid in crypto, the FMV at the time of payment is treated as wages and subject to standard payroll taxes. These wages must be reported on Form W-2.

If you’re an independent contractor compensated with crypto, the FMV is reported as nonemployee compensation on Form 1099-NEC if payments exceed $600 for the year.

Crypto losses and the wash sale rule.

Currently, the IRS treats digital assets as property, not securities. This distinction means the wash sale rule doesn’t apply to cryptocurrencies. If you sell a digital asset at a loss and buy it back soon after, you can still claim the loss on your taxes.

However, this rule does apply to crypto-related securities, such as stocks of cryptocurrency exchanges, which fall under the wash sale provisions.

Form 1099 for crypto transactions

Depending on how you interact with a digital asset, you may receive a:

Form 1099-MISC,
Form 1099-K,
Form 1099-B, or
Form 1099-DA.

These forms are also sent to the IRS, so it’s crucial that your reported figures match those on the form.

Evolving landscape

Digital asset tax rules can be complex and are evolving quickly. If you engage in digital asset transactions, maintain all related records — transaction dates, FMV data, and cost basis. Contact us with questions. This will help ensure accurate and compliant reporting, minimizing your risk of IRS penalties.

Filing Status Matters: A Timely Tax Season Reminder

April 2, 2025/in News, Tax Tips - Individual/by Betty Kim

As we dive deeper into tax season, one of the most common — and surprisingly complex — questions we come across is: What’s the right filing status for me?

With life changes like separation, divorce, blended families, or shifts in household dynamics, choosing the correct filing status isn’t always straightforward. And it matters — big time. This filing status topic always comes up. Never a dull moment in tax!

Here’s a quick breakdown of the five IRS filing statuses, with a spotlight on a common area of confusion:

Filing Statuses:

Single – Unmarried and not qualifying for another status.
Married Filing Jointly (MFJ) – Most common for married couples.
Married Filing Separately (MFS) – May make sense in certain situations (e.g., separate finances, liability concerns).
Head of Household (HOH) – For unmarried or “considered unmarried” individuals who support a qualifying person.
Qualifying Surviving Spouse – Available for two years following the year of a spouse’s death (with a dependent child).

Let’s talk Head of Household (HOH) — a common area of confusion:

If you’re legally married, you typically must file MFJ or MFS — not HOH.

However, if you’ve been living apart from your spouse for the last six months of the year, and:

You maintain the household,
Your dependent child, stepchild, adopted child, or foster child lives with you for more than half the year,
You pay more than half of the household expenses,

Then you may be treated as “considered unmarried” and be eligible to file as Head of Household — even if still legally married.

This can offer better tax rates, a higher standard deduction, and access to valuable credits like the Child Tax Credit or Earned Income Credit (EIC).

Every family situation is unique — and we’re here to help make sure your filing status accurately reflects yours. Whether your life looked a little different in 2024 or you’re just not sure where you fit, reach out and let’s take a closer look together.

Looking ahead to 2025 tax limits as you prepare to file your 2024 return

January 29, 2025/in News, Tax Tips - Individual/by Betty Kim

Chances are, you’re more concerned about your 2024 tax return right now than you are about your 2025 tax situation. That’s understandable because your 2024 individual tax return is due to be filed by April 15 (unless you file for an extension).

However, it’s a good time to familiarize yourself with tax amounts that may have changed for 2025 due to inflation. Not all tax figures are adjusted annually for inflation, and some amounts only change when Congress passes new laws.

In addition, there may be tax changes due to what’s happening in Washington. With Republicans in control of both the White House and Congress, we expect major tax law changes in the coming months. With that in mind, here are some Q&As about 2025 tax limits.

I haven’t been able to itemize deductions on my last few tax returns. Will I qualify for 2025?

Beginning in 2018, the Tax Cuts and Jobs Act eliminated the ability to itemize deductions for many people by increasing the standard deduction and reducing or eliminating various deductions. For 2025, the standard deduction amount is $30,000 for married couples filing jointly (up from $29,200 in 2024). For single filers, the amount is $15,000 (up from $14,600 in 2024) and for heads of households, it’s $22,500 (up from $21,900 in 2024). If the total amount of your itemized deductions (including mortgage interest) is less than the applicable standard deduction amount, you won’t itemize for 2025.

If I don’t itemize deductions, can I claim charitable deductions on my 2025 return?

Generally, taxpayers who claim the standard deduction on their federal tax returns can’t deduct charitable donations.

How much can I contribute to an IRA for 2025?

If you’re eligible, you can contribute up to $7,000 a year to a traditional or Roth IRA. If you earn less than $7,000 during the year, you can contribute up to 100% of your earned income. (This is unchanged from 2024.) If you’re 50 or older, you can make an additional $1,000 “catch-up” contribution (for 2024 and 2025).

I have a 401(k) plan with my employer. How much can I contribute to it?

In 2025, you can contribute up to $23,500 to a 401(k) or 403(b) plan (up from $23,000 in 2024). You can make an additional $7,500 catch-up contribution if you’re age 50 or older (for 2024 and 2025). However, there’s something new this year for 401(k) and 403(b) participants of certain ages. Beginning in 2025, those who are aged 60, 61, 62, or 63 can make catch-up contributions of up to $11,250.

I occasionally hire a cleaning person. Am I required to withhold and pay FICA tax on the amounts I pay him or her?

In 2025, the threshold for when a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc. who are independent contractors is $2,800 (up from $2,700 in 2024).

How much of my earnings will be taxed for Social Security in 2025?

The Social Security tax “wage base” is $176,100 for this year (up from $168,600 in 2024). That means you don’t owe Social Security tax on amounts earned above that. (You must pay Medicare tax on all amounts you earn.)

How much can I give to one person without triggering a gift tax return in 2025?

The annual gift tax exclusion for 2025 is $19,000 (up from $18,000 in 2024).

How will the changes in Washington affect taxes this year and in the future?

We obviously can’t predict the future with certainty. The specifics of any new tax legislation depend on various political and economic factors. However, there are likely to be many changes in the next few years. President Trump and Republicans have signaled that they’d like to extend and possibly make permanent the provisions in the Tax Cuts and Jobs Act that expire after 2025. They’ve also discussed raising or eliminating the cap on the state and local tax deductions. Other proposals include expanding the Child Tax Credit and making certain types of income (tips, overtime, and Social Security benefits) tax-free. Some of these tax breaks could become effective for the 2025 tax year.

Changes ahead

These are only some of the tax amounts and potential changes that may apply to you. Contact us if you have questions or need more information.

2025 – Wishing You a Successful and Prosperous New Year!

January 6, 2025/in Encore Culture, News, Tax Tips - Business, Tax Tips - Individual/by Betty Kim

Dear Clients, Trusted Advisors and Colleagues,

Happy New Year!

As we step into 2025, we’re excited about what lies ahead and look forward to serving you with even greater focus, care, and expertise.

Our team has been diligently preparing to support your goals in taxes, accounting, and business consulting—whether for your business, new ventures, personal finances, or overall well-being.

This year brings exciting opportunities and changes, and we’ll be right by your side as your trusted advisors. While we thrive on assisting clients with growth and success, we also take great pride in helping those facing challenges—be it struggling businesses, life transitions like relocation, divorce or loss, or complex financial situations. The most rewarding part of our work is making a difference when it’s needed most.

We are truly grateful for your trust in us and wish you a year filled with success, prosperity, and peace. Stay tuned for updates as we step into the busy season ahead and throughout the year as we continue to guide and support you.

Cheers to an incredible 2025!

Get tax breaks for energy-saving purchases this year because they may disappear

November 20, 2024/in News, Tax Tips - Individual/by Betty Kim

The Inflation Reduction Act (IRA), enacted in 2022, created several tax credits aimed at promoting clean energy. You may want to take advantage of them before it’s too late.

On the campaign trail, President-Elect Donald Trump pledged to “terminate” the law and “rescind all unspent funds.” Rescinding all or part of the law would require action from Congress and is possible when Republicans take control of both chambers in January. The credits weren’t scheduled to expire for many years, but they may be repealed in 2025 with the changes in Washington.

If you’ve been thinking about making any of the following eligible purchases, you may want to do it before December 31.

Home energy efficiency improvements

Homeowners can benefit from several tax credits for making energy-efficient upgrades to their homes. These include:

Energy Efficient Home Improvement Credit: This credit covers 30% of the cost of eligible home improvements, such as installing energy-efficient windows, doors, and insulation, up to a maximum of $1,200 this year. There’s also a credit of up to $2,000 for qualified heat pumps, water heaters, biomass stoves, or biomass boilers.
Residential Clean Energy Credit: This credit is available for installing solar panels, wind turbines, geothermal heat pumps, and other renewable energy systems. It covers 30% of the cost.
Energy Efficient Property Credit: For those investing in clean energy for their homes, this credit offers a significant incentive. It covers 30% of the cost of installing solar water heaters and other renewable energy sources.

Clean vehicle tax credit

One of the most notable IRA provisions is the clean vehicle tax credit. If you purchase a new electric vehicle (EV) or fuel cell vehicle (FCV), you may qualify for a tax credit of up to $7,500. The credit for a pre-owned clean vehicle can be up to $4,000. To be eligible, the vehicle must meet specific criteria, including price caps and income limits for the buyer.

The credit can be claimed when you file your tax return. Alternatively, you can transfer it to an eligible dealer when you buy a vehicle, which effectively reduces the vehicle’s purchase price by the credit amount.

Electric Vehicle Charging Equipment Credit

If you install an EV charging station at your home, you can claim a credit of 30% of the cost, up to $1,000. This credit is designed to encourage the adoption of electric vehicles by making it more affordable to charge at home.

Act now

These are only some of the tax breaks in the IRA that may reduce your federal tax bill while promoting clean energy.

IRS data has shown that the tax breaks are popular. For example, in 2023 (the first year available), approximately 750,000 taxpayers claimed the credit for rooftop solar panels. Keep in mind that a tax credit is more valuable than a tax deduction. A credit directly reduces the amount of tax you owe, dollar for dollar, while a deduction reduces your taxable income, which is the amount subject to tax.

So, act now if you want to take advantage of these credits. There may also be state or local utility incentives. Contact us before making a large purchase to check if it’s eligible.

The nanny tax: What household employers need to know

November 5, 2024/in News, Tax Tips - Individual/by Betty Kim

Hiring household help, whether you employ a nanny, housekeeper, or gardener, can significantly ease the burden of childcare and daily chores. However, as a household employer, it’s critical to understand your tax obligations, commonly called the “nanny tax.” If you hire a household employee who isn’t an independent contractor, you may be liable for federal income tax and other taxes (including state tax obligations).

If you employ a household worker, you aren’t required to withhold federal income taxes from pay. But you can choose to withhold if the worker requests it. In that case, ask the worker to fill out a Form W-4. However, you may be required to withhold Social Security and Medicare (FICA) taxes and to pay federal unemployment (FUTA) taxes.

2024 and 2025 thresholds

In 2024, you must withhold and pay FICA taxes if your household worker earns cash wages of $2,700 or more (excluding the value of food and lodging). The Social Security Administration recently announced that this amount will increase to $2,800 in 2025. If you reach the threshold, all the wages (not just the excess) are subject to FICA.

However, if a nanny is under age 18 and childcare isn’t his or her principal occupation, you don’t have to withhold FICA taxes. So, if you have a part-time student babysitter, there’s no FICA tax liability.

Both an employer and a household worker may have FICA tax obligations. As an employer, you’re responsible for withholding your worker’s FICA share. In addition, you must pay a matching amount. FICA tax is divided between Social Security and Medicare. The Social Security tax rate is 6.2% for the employer and 6.2% for the worker (12.4% total). Medicare tax is 1.45% each for the employer and the worker (2.9% total).

If you want, you can pay your worker’s share of Social Security and Medicare taxes. If you do, your payments aren’t counted as additional cash wages for Social Security and Medicare purposes. However, your payments are treated as additional income to the worker for federal tax purposes, so you must include them as wages on the W-2 form that you must provide.

You also must pay FUTA tax if you pay $1,000 or more in cash wages (excluding food and lodging) to your worker in any calendar quarter. FUTA tax applies to the first $7,000 of wages paid and is only paid by the employer.

Making payments

You pay household worker obligations by increasing your quarterly estimated tax payments or increasing withholding from wages, rather than making an annual lump-sum payment.

As an employer of a household worker, you don’t have to file employment tax returns, even if you’re required to withhold or pay tax (unless you own your own business). Instead, employment taxes are reported on your tax return on Schedule H.

When you report the taxes on your return, include your employer identification number (EIN), which is not the same as your Social Security number. You must file Form SS-4 to get one.

However, if you own a business as a sole proprietor, you include the taxes for a household worker on the FUTA and FICA forms (940 and 941) you file for the business. And you use your sole proprietorship EIN to report the taxes.

Maintain detailed records

Keep related tax records for at least four years from the later of the due date of the return or the date the tax was paid. Records should include the worker’s name, address, Social Security number, employment dates, amount of wages paid, taxes withheld, and copies of forms filed.

Contact us for assistance or if you have questions about how to comply with these requirements.

Working remotely is convenient, but it may have tax consequences

August 28, 2024/in News, Tax Tips - Individual/by Encore Partners Team

Many employees began working remotely during the pandemic and continue doing so today. Remote work has many advantages for employers and employees, and as a result, it’s here to stay in many industries. But it may also lead to some tax surprises, especially if workers cross state lines.

Double taxation may occur

It’s not unusual for employees to work remotely for an employer in another state. For some businesses, remote work has become a permanent arrangement that allows employees to live and work further away from a physical office.

If you live in one state and work remotely for an employer in another state, familiarize yourself with the tax laws in both states and determine how they may affect you. For example, you may need to file income tax returns in both states, which could result in increased — or even double — taxation.

Here’s the problem: A state generally has the power to tax the incomes of people who are domiciled in it as well as people who reside there. Domicile is a state of mind and is often based on a person’s intent to make a location his or her “true, fixed, permanent home.” Residency is based on physical presence in a state for a certain amount of time (typically, 183 days per year).

It’s possible to be domiciled in one state and a resident of another. For example, let’s say you have a permanent home in one state where your job is located and a vacation home in another state. Your employer allows employees to work remotely, so now you spend more than 200 days per year living and working at your vacation home. The state where your permanent home is located considers you to be domiciled there, but the state where your vacation home is located views you as a resident. So you may be subject to taxes on the same income in both states. You could avoid double taxation if one or both states provide credit for tax paid to other states. But your tax bill may still increase if, for example, one state’s income tax rate is significantly higher than the other state’s rate.

Complications for employers

From an employer’s perspective, allowing employees to work remotely may create obligations to withhold and remit income and payroll taxes in several states. Plus, having employees in other states may be sufficient to establish “nexus” with those states, potentially triggering liability for their income, franchise, gross receipts, or sales and use tax. In addition to the expense of tax reporting in multiple states, this may increase an employer’s overall tax liability. There are other complications as well.

Business expense deductions

Under current law, employees generally can’t deduct unreimbursed job-related expenses. Years ago, employees could claim certain costs as miscellaneous itemized deductions, which are deductible to the extent they exceed 2% of adjusted gross income. But those deductions were eliminated for 2018 through 2025.

Remote workers typically aren’t eligible for the home office deduction either. That deduction is generally limited to self-employed business owners. Prior to 2018, employees could claim the deduction if, among other things, they worked at home “for the convenience” of their employers. But that deduction was also eliminated for 2018 through 2025.

Employers may reimburse remote workers for their business expenses according to an “accountable plan” that requires employees to substantiate expenses and meet other requirements. Properly reimbursed expenses are deductible by an employer and excludable from an employee’s income.

Be aware of the consequences

If you’re a remote worker or own a business that employs remote workers, be sure you understand the tax implications. In some cases, you may be able to take steps to minimize them. But even if you can’t, it’s important to know what to expect.

Taxpayers should review the education tax credits before they file

August 6, 2024/in News, Tax Tips - Individual/by Encore Partners Team

Here is a useful article from the IRS Tax Tip 2024-67.

There are two education tax credits designed to help offset education costs: the American Opportunity Tax Credit and the Lifetime Learning Credit.

Eligibility requirements
For both tax credits, to be eligible:

The taxpayer, their spouse or their dependents must take post-high school coursework in tax year 2024.
The student must have a Form 1098-T, Tuition Statement, from an eligible educational institution. There are exceptions for some students.

Things taxpayers should know about the education tax credits.
The American Opportunity Tax Credit is:

Worth a maximum benefit of up to $2,500 per eligible student.
Available only for the first four years at an eligible college or vocational school.
For students pursuing a degree or other recognized education credential.
Partially refundable. People could get up to $1,000 back.

The Lifetime Learning Credit is:

Worth a maximum benefit of up to $2,000 per tax return, per year, no matter how many students qualify.
Available for all years of postsecondary education and for courses to acquire or improve job skills.
Available for an unlimited number of tax years.

Claiming the credits
To claim either credit, taxpayers must complete Form 8863, Education Credits, and file it with their federal tax return.

Six tax issues to consider if you’re getting divorced

July 18, 2024/in News, Tax Tips - Individual/by Encore Partners Team

Divorce entails difficult personal issues, and taxes are probably the farthest thing from your mind. However, several tax concerns may need to be addressed to ensure that taxes are kept to a minimum and that important tax-related decisions are properly made. Here are six issues to be aware of if you’re in the process of getting a divorce.

Personal residence sale

In general, if a couple sells their home in connection with a divorce or legal separation, they should be able to avoid tax on up to $500,000 of gain (as long as they’ve owned and used the home as their principal residence for two of the previous five years). If one former spouse continues to live in the home and the other moves out (but they both remain owners of the home), they may still be able to avoid gain on the future sale of the home (up to $250,000 each), but special language may have to be included in the divorce decree or separation agreement to protect this tax exclusion for the spouse who moves out.

If the couple doesn’t meet the two-year ownership and use tests, any gain from the sale may qualify for a reduced exclusion due to unforeseen circumstances.

Pension benefits

A spouse’s pension benefits are often part of a divorce property settlement. In these cases, the commonly preferred method to handle the benefits is to get a “qualified domestic relations order” (QDRO). This gives one former spouse the right to share in the pension benefits of the other and taxes the former spouse who receives the benefits. Without a QDRO, the former spouse who earned the benefits will still be taxed on them even though they’re paid out to the other former spouse.

Filing status

If you’re still married at the end of the year, but in the process of getting divorced, you’re still treated as married for tax purposes. We’ll help you determine how to file your 2024 tax return — as married filing jointly or married filing separately. Some separated individuals may qualify for “head of household” status if they meet the requirements.

Alimony or support payments

For alimony under divorce or separation agreements that are executed after 2018, there’s no deduction for alimony and separation support payments for the former spouse making them. And the alimony payments aren’t included in the gross income of the former spouse receiving them. (The rules are different for divorce or separation agreements executed before 2019.) This was a change made in the Tax Cuts and Jobs Act. However, unlike some provisions of the law that are temporary, the repeal of alimony and support payment deduction is permanent.

Child support and child-related tax return filing

No matter when the divorce or separation instrument is executed, child support payments aren’t deductible by the paying former spouse (or taxable to the recipient). You and your ex-spouse will also need to determine who will claim your child or children on your tax returns in order to claim related tax breaks.

Business interests

If certain types of business interests are transferred in connection with divorce, care should be taken to make sure “tax attributes” aren’t forfeited. For example, interests in S corporations may result in “suspended” losses (losses that are carried into future years instead of being deducted in the year they’re incurred). When these interests change hands in a divorce, the suspended losses may be forfeited. If a partnership interest is transferred, a variety of more complex issues may arise involving partners’ shares of partnership debt, capital accounts, built-in gains on contributed property and other complex issues.

A range of tax challenges

These are just some of the issues you may have to cope with if you’re getting a divorce. In addition, you may need to adjust your income tax withholding, and you should notify the IRS of any new address or name change. There are also estate planning considerations. We can help you tackle the financial issues involved in divorce.

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