For Texas couples who are going through a divorce, the desire to save money is often at the top of each spouse’s priority list. As tax season approaches, many spouses may be wondering what, if any, portion of their divorce costs might be deductible. Unfortunately, the majority of one’s legal bills are eligible for any form of tax relief. However, there are a couple of notable exceptions, and these should be considered during the property division process.
One cost that can be deducted on a tax return involved seeking assistance with the tax consequences of various settlement options. Spouses who pay a tax professional to go over the details of their divorce and provide advice on minimizing tax obligations may be able to claim the cost of that assistance as a tax deduction. However, the cost of such advice must exceed 2 percent of the filer’s Adjusted Gross Income, or AGI.
This can be a significant hurdle to cross. Take, for example, a spouse whose AGI is 100,000. If that individual paid 10,000 in legal advice aimed at reducing his or her tax obligations, part of those fees would be eligible for use as a deduction. Once the 2 percent was reached, here at $2,000, the additional $8,000 could be used as a deduction.
Divorce and taxes may be among the least enjoyable topics possible. However, in certain situations, there can be tax advantages associated with a Texas divorce and property division. For those who suspect that their legal fees may be eligible for deductions, it is important to fully investigate how those costs can be leveraged within one’s tax return. Divorce can be challenging, and spouses who are able to find any form of financial silver lining should make every effort to do so.
Source: The Huffington Post, What’s Deductible for Legal Fees When Couples Divorce, Julian Block, Feb. 3, 2014