I separated from my wife in March. Our divorce will be final in September. As a married couple last year, we ended up owing almost $2,000. We didn't own anything and she was contributing to her 401K. I was not elligibel until January of this year for my 401K. I currently make $52,000/yr and now contribute 8% to my 401K. What else can I do (besides buy a house) to ensure I'm not stuck with a big tax bill at the end of the year? Will the divorce help or hurt this situation? And when do they consider it no longer joint income - when we are officially divorced,or when we officially seperated (that date is noted on the divorce papers?)I'd appreciate some guidance.
If all goes according to plan, you will be a filing as aSingle taxpayer for tax year 1999. You should figureyour "tax liability" ahead of time. Like right now!To avoid any tax penalty, you want with-holding tobe 90% of your 1999 "tax liability" or 100%. of your1998 "tax". (this is called Safe Harbor) Since you filed jointly for tax year 1998, you could use one-half of the "joint" tax liability for last year to figure your 1999 safe harbor amount. (This part is where I'm looking for some "confirmation" from others - it can get complex due to the divorce.) The divorcecauses tax concerns when there are dependents, alimony, support-agreements, ( not child support) or health/life insurance policies that you have to pay, for her, over specified years. Many of these can be deductible items. Good Luck.
Your situation brings up an interesting scenario for couples in the midst of a divorce.State law presides in such cases - yours is pretty clean in that it seems to be a relatively amicable split - seperated in March; divorced in September.You must not have had any property disputes whatsoever.If your divorce had not been final until sometime the following year then the laws of the state in which you reside would determine your marital status at year end.For instance, in NC you are legally married until the terms of the divorce decree have been approved by the courts.IOW - if you are only separated and the divorce decree has not been issued then you are still deemed to be married in NC.This leads usually to some interesting discussions as far as the "limbo" year is concerned - MFS or MFJ (joint is usually cheaper).There is really not too much you can do unless you qualify for an IRA or some other type of tax deferred savings plan - my advice is to max them out; set your goals on as fast a settlement as possible and keep the legal fees to a minimum. These costs are usually more exorbitant and costly than the taxes.Pete
BobStL writes (in part):Since you filed jointly for tax year 1998, you could use one-half of the "joint" tax liability for last year to figure your 1999 safe harbor amount. (This part is where I'm looking for some "confirmation" from others - it can get complex due to the divorce.)I reply:Actually, it's not that simple. I wondered about this question myself two or three months ago, and posted the question (purely from academic curiosity). Roy's response (if I recall correctly) is that in order to take advantage of the safe harbor amount, you must figure out how much of your joint tax liability was due to your income and deductions, and how much was due to your wife's. If you live in a community property state, I'm not sure how the calculation is affected, but either way, if you plan to rely on this safe harbor, you might want to talk to a tax advisor. You should have one review the divorce papers before they go final in any event. --Bob
As long as according to your state you are divorced by December 31, 1999, you can file as a single.It is pretty easy to determine if changing your status to single will be a positive or negative change for your taxes. Being married is usually to your advantage in only two circumstances:1) One partner does not work.2) One partner earns substantially more than the other (ususally an order of magnitute greater).If neither of these circumstances apply, it will most likely be benefical to you, tax wise, to become single. But run the numbers yourself!jbw
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