Many people in the Gulfport area might think that only high earners need to worry about how a divorce is going to affect their bottom line on taxes.
But income taxes and other taxes can affect just about any Mississippi couple who is going through a divorce proceeding.
A resident of Mississippi’s Gulf Coast will want to understand the possible tax consequences of their divorce, as it could affect how they go forward in their case.
At a minimum, couples will want to decide whether they wish to file joint tax returns while a divorce is pending. Usually, doing so makes financial sense, but there may be other important considerations, as both spouses can be accountable for inaccuracies on a joint return.
Couples with children will need to think about their IRS exemptions
Federal and state laws provide valuable tax breaks to parents of dependent children.
If the two parents maintain separate homes, they will want to address which parent will have the right to claim these benefits in what years, as the IRS will not allow two parents living separately to claim the tax breaks in the same year.
By default, the parent who has custody of the child for most of the time gets the tax breaks. In order for the other parent to claim a child, the custodial parent is supposed to sign a document releasing their right to claim the child as a dependent.
People with retirement accounts will need to follow applicable tax requirements
Mississippi law provides for the division of tax-protected retirement accounts during a divorce.
However, in order to avoid complications or early withdrawal penalties, the couple will have to submit an appropriate court order, called a Qualified Domestic Relations Order, or QDRO, to the retirement plan’s administrator.
Other people may face more complicated situations involving capital gains
Many Mississippi couples may own investments that are subject to capital gains tax. Basically, the capital gains tax is a tax on the profit a person receives from buying and then selling an investment.
Transferring investment property from one spouse to another normally would not trigger this tax at the time of the divorce.
However, should the spouse who kept the property want to sell it later, they may find themselves surprised by unpleasant tax consequences. Likewise, choosing to sell property on the open market and split the proceeds as a way of dividing property may lead to a capital gains tax.