Divorce & Child Tax Deductions: An Expert Q&A With CPA Andrew Lisicky
When you go through a divorce, what are the tax implications? As part of our Family Law Jersey Style series, Bari Weinberger sat down with CPA Andrew Lisicky of Buckno Lisicky & Company to discuss how divorce changes the way you file taxes and how decisions you make about certain items in your divorce settlement may raise or lower your tax burden, especially when you have child dependents. Please watch the full interview for all of Andrew’s valuable tips or read the transcript below.
Bari Weinberger: Welcome back to Family Law: Jersey Style. We are here with our special guest, Andrew Lisicky, a shareholder and Certified Public Accountant of Buckno Lisicky with various locations. So, I wanted to welcome you Andrew… Thank you for being here!
Andrew Lisicky: My pleasure.
Bari Weinberger: Can you tell us, for parents, what do they need to know about the Dependency Exemption?
Andrew Lisicky: The Dependency Exemption for Federal Income Tax purposes in the thirty nine hundred dollar deduction off of taxable income. So on Federal’s thirty nine hundred dollars per qualifying child, so if you one kid it is thirty nine hundred dollars that would come of your taxable income. For New Jersey, New Jersey allows a fifteen hundred dollar deduction off of taxable income.
Bari Weinberger: Okay, Thank you. So, when parents are separated for instance; what do they need to know about – for instance – head of household?
Andrew Lisicky: Head of household … is something that most of divorced couples needed come to grips with, hey you’re not going to get all the benefits that may have had at marriage, filing joint but you’re not going to be as negatively impacted as if you were filing it as single, so it’s kind of in between both. The household in which there are dependent children living there.
Bari Weinberger: If couples are getting toward the end of the year, and they’re contemplating, finalizing their … the relationship if you will – what should they do? Should they finalize it toward the end of the year or should they, or would they benefit financially from waiting until January for instance so that they can capture the joint filing for the prior year?
Andrew Lisicky: Every situation is different, and – and to answer your question it would be dependent upon certain income level that you have there but if I was to make a general statement, in most cases it makes more sense to file that final tax as married filing: joint.
Bari Weinberger: So can you explain whether or not alimony and child support are taxable items or if in fact they are tax deductible and how so, please.
Andrew Lisicky: Okay! So, the payor of alimony or child support will get a deduction for the amount allocated to alimony. It will not get a deduction for the amount allocated to the child support. On the flip side, the person receiving the money will have to pay tax on the alimony portion of the monthly amount that you’re receiving but will not have to pay tax on the child support portion of that.
Bari Weinberger: So, essentially the person who is receiving alimony gets charged income taxes on that money. I see for instance that a lot of couples who are settling their final divorce matters like to in their agreement alternate the deductions or alternatively split if they have two children; one takes the exemption, one doesn’t take the exemption – is there a preference?
Andrew Lisicky: I’ll first say, that it’s something needs to be identified I think in the final divorce decree, how are the dependents – the qualifying children – are going to be split but that’s important, sometimes that slips through the cracks and its not identified.
Bari Weinberger: What would happen if, for instance, if both parents tried to take the exemption for the same child?
Andrew Lisicky: The IRS would first recognize the first return that was presented to them in a filing. That might not be the actual case as far as who’s providing more support.
Bari Weinberger: So, essentially, if a person is diligent in filing their taxes and the final divorce agreement is silent as to that issue they might actually get the financial benefit?
Andrew Lisicky: The IRS try to stay out of these disagreements, you know they’re going to go back and say “Hey, you know you picked up your child on your return, but your former spouse also picked up your child on their return and there’s going to be one parent may be getting some money back and the other parent may have to pay some money because of this. They’re going to have to work that out. When you’re going through a divorce, you know you have a divorce attorney but there are tax aspects that need to be considered and if you don’t really spell out what those tax aspects are you don’t want to be faced you know – April and that’s the first time you realize that the forty thousand dollars you received in alimony might cost you ten or fifteen thousand dollars of taxes. So, you should really go in with your eyes wide open.
Bari Weinberger: Now, just a personal question, so let’s say you’re representing a couple while they are filing their joint returns during their relationship and then they come to you and say “listen we’re getting divorced”. Can you continue to handle the financial aspect and the filing of the tax returns and giving each of them tax advice?
Andrew Lisicky: I don’t like doing that, it’s conflict of interest I think it’s a personal ethics violation. I have run into some instance where they both know it and they both accept it. So I think if you’re above board and you explain the circumstances to both of them. In many instances it’s pretty cut and dried; this is the alimony is and I could be the resource to explain what the tax cost is of that.
Bari Weinberger: A good practice tip for attorneys and a good point for litigants – who are parties – to be mindful of, essentially is that during their negotiations and during the settlement drafting of those documents. Well, they should consider maybe putting in a Plan B alternative.
Andrew Lisicky: That’s the language that should be there and that may have gotten pushed to the wayside these past couple of years when the personal exemption phaseout wasn’t in place but now it’s back. So, it’s probably four or five years in which was it was gone so, you probably should revisit that.
Bari Weinberger: Alright, absolutely and you should definitely talk to your account, that’s absolutely certain. Well, you’re the expert so we know they’re going to be fighting over you as opposed to having to go somewhere else.
Andrew Lisicky: That’s very kind
Bari Weinberger: So, that’s for sure. I appreciate it, thank you so much for taking the time in coming and visiting with us and answering all these questions today. It’s been a pleasure having you. Thank you!
Andrew Lisicky: You’re welcome!
Thank you Andrew for sharing your expertise! Please watch the full video on our Youtube channel and subscribe to watch more upcoming interviews as part of our Family Law Jersey Style series.
Have questions about taxes and your divorce? We are here to help. Please contact us to schedule your initial consultation with one of our highly skilled Weinberger Divorce & Family Law Group, LLC attorneys.
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