Tax deductions save Americans hundreds if not thousands of dollars each year, and some of those tax deductions are in question. One of the questions concerns divorce. People wonder if the legal attorney fees are tax deductible when getting a divorce.
The short answer we can give is no; it is not tax deductible. President Donald J. Trump signed the Tax Cuts and Jobs Act (TCJA) into law, covering 2019 – 2025. Perhaps after 2025, it may allow tax deductions for divorce attorney fees, but for now, all personal legal expenses are not tax deductible.
Only legal business fees are tax deductible. Certain expenses that occur after the divorce are tax deductible, like alimony. Child support is not tax deductible. We will break each of these down through this information.
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What is a Tax Deduction?
A business and a household will find it most challenging to thrive without tax deductions. Those in business and those who itemize throughout the year know very well what tax deductions are. What you earn in a year is gross pay. After taxes, you are left with net income.
From the net income are expenses that cover your business or household items. By saving the receipts, you can use those items as a tax deduction if it falls under a specific category set by the IRS standards. The list is outstanding and going with an attorney or CPA can give the green light if certain items are tax deductible. To sum up, almost every expense it takes to operate a business or household is tax deductible.
Divorce and Tax Deductions
There are certain tax deductions for married couples filing separately and others filing jointly. The same applies if the couple files for divorce. The attorney fees are out of the question because it is a personal expense not necessary to live. These are the items that are tax deductible when divorce is the only option:
- Alimony payments
- Any business expenses
- Child tax credit (only for the custodial parent)
- If the married couple getting divorced owns a business, the share is 50/50, and tax deductions are split a certain way, so both parties pay their taxes and get adequate tax deductions off of the business.
- Changing back to maiden name
- Personal injury lawsuits (if any)
- Divorce settlements
- Legal defense for criminal or civil cases
Undoubtedly, things can become confusing when going through a divorce and worrying about taxes. When the season comes around, the good news is that you will only have to deal with the confusion once. Afterward, you can file either single or head of the household, and as it is much easier to understand what is tax deductible and what is not. Also, what you can claim and what your ex will claim will be sorted out after the first round. Looking above, we will break down some of the tax-deductible items.
Alimony is when one spouse has to pay the other X amount of dollars to live, pay bills, and pay additional living expenses. The party receiving the funds for alimony must claim it as income for the year. They will have to pay taxes on the money received the following year. The spouse who pays alimony can claim a tax deduction for the amount paid within a year.
How much is paid depends on the amount issued for alimony the court sets. The judge will go by the amount the paying party makes and require a percentage of the pay to go to the other person after the final divorce proceeding.
All business expenses are tax deductible, but who is responsible when a divorce is involved, and both persons have investments in the company? A few things can happen.
- The couple can sell the business and split the sale.
- They can continue with the company but claim half tax deductions or whatever each has a share within the company.
- One partner can donate or sell their company share to the other.
Any profits that come off of the sale of the business are taxable. Should the couple continue with the company, they can sit down and figure out half of the deductions. For example, one person may use the company’s bills to function, and the other person may take the expenses of the product or overhead costs. Both parties can split the utility bills, rent, or lease and claim half the amount. Any company vehicles are considered assets and will be divided accordingly.
Child Tax Credits
Another item that most people do not know about is that child support payments are not tax deductible. Payments made to the custodial parent are also not taxed. At the end of the year, the custodial parent or the one that the child spends most of their time with can claim the child as a dependent, which offers the child tax credits set by Congress.
Certain Cases Tax Deductible
Those cases mentioned above are the only opportunity for a person to receive a tax deduction regarding legal fees. These cases are separate and have nothing to do with the divorce attorney fees. Still, the situation may have escalated to receiving one of these unexpected legal fees added to the pot.
Another thing to consider is the state you will try to claim tax deductions. The laws are different in each state. The attorney can and will help you find the answers if you are unaware of any laws.
Name Changes and Divorce Settlements
Name changing is the ex-wife going back to their maiden name. A tax-deductible fee goes along with name changing after divorce, as they will have to get another social security card to start the legal process.
Any divorce with a settlement is tax deductible and should be discussed with divorce lawyers in Indianapolis on how to get the deduction. It is critical to go over any information concerning taxes and divorce with a professional attorney. Doing so will keep things going smoothly.