Going through a divorce can be a devastating process. One thing that can make the process even more excruciating is to have built your small business from the ground up and knowing that it is considered an asset that will be divvied up with your former spouse. If you aren’t careful, you can also end up getting stuck with extra taxes when it is all said and done as well. Mecham Dicus & Company is here to share some tips to hopefully help the process be a little less painful for small business owners.
Take Advantage of the Tax-Free Transfer Rule
One of the silver linings that you can find when splitting up your assets and business is that there is a tax-free transfer rule you should take full advantage of. This means that ordinary income assets that are things like inventory, vested stock options, capital gains assets and even just cash can be split up without any immediate taxes being due. Also, in the future, if your ex-spouse decides to sell any of the stocks, you won’t be liable to pay capital gains on them, your ex-spouse will. You just need to make sure they are made “incident to divorce.” This means that they are done within the year that the marriage ends or are outlined in the original divorce agreement and done within 6 years.
Retirement accounts are considered a little differently when it comes to the tax-free transfer rule. You could end up paying taxes on the money that goes to your ex-spouse if you don’t include a qualified domestic relations order (QDRO) in the divorce papers. This will make them responsible for paying taxes on any income that comes from annuity, pension payments or withdrawals.
Your Tax Status Will Change Right Away
If you have gotten divorced anytime during the calendar year, you need to be aware that your filing status has changed to single throughout the entire year. This is important to ensure you don’t file something wrong and get stuck with penalties. If you have kids, only one of you can claim them on your taxes. Working with your former spouse to divide that up to where you can at least claim one child will help you avoid a tax impact taking you by surprise.
Tax Preparation, Filing, Planning & More in Salt Lake City, St. George, West Valley City, Provo, Orem, West Jordan & Greater Cedar City, Utah
If you have gotten divorced in the past year, it will be well worth your time and money to consult with an accountant to help you keep everything straight. At Mecham Dicus & Company, we can help you sort out all of the details when it pertains to your small business. We can help you divvy up all the assets so that any potential taxes are taken into account and the split is truly an equitable one. While many people think lawyers are the only ones that help during a divorce, the help of an accountant shouldn’t be dismissed. Call us today!