Divorce can significantly change life and has considerable
implications for taxes. Tax filing after divorce requires an understanding of
new filing statuses, exemptions, child deductions, alimony, and property
settlements, among other factors. Here are the steps to help navigate filing
taxes the first year after divorce.
Step #1- Understand your filing status
Tax filing status predominantly affects the amount of taxes
one pays. One's marital status on December 31 determines one's tax filing
status for that year. If the divorce is final before the end of the year, the
IRS considers you unmarried for the whole year. Therefore, it's required to
file as single or head of household.
Step #2- Claiming exemptions and deductions
Under the Tax Cuts and Jobs Act (TCJA), various personal and
dependent exemptions have been eliminated from the tax code until 2025.
However, you can claim the child tax credit as the custodial parent. The
custodial parent is generally the one with whom the child spends more than half
the year.
The TCJA also increased the standard deduction. For this tax
year, visit with financial and tax professionals to determine which itemized
deductions may be available to you, depending on your situation.
Step #3- Account for alimony
Alimony paid and received also affect tax filings after
divorce. The TCJA made some significant changes to the tax treatment of
alimony:
For divorce agreements finalized after December 31, 2018,
alimony payments are not deductible by the payer and are not taxable to the
recipient. In divorce agreements before this date, the payer can deduct alimony
payments, considered income, to the recipient. Ensure you understand how these
rules apply to your specific situation.
Step #4- Understand property settlements
Taxes also come into play with property settlements in a
divorce. Typically, there is no gain or loss to report on your tax return from
transferring property between spouses during a divorce. However, capital gains
tax may apply if the property received in a divorce settlement is sold.
Step #5- Seek professional guidance
Filing taxes after divorce can become complex, as many
factors come into play. It is advisable to seek professional help by consulting
with a tax advisor or a CPA specializing in divorce taxes. If you're working
through the divorce process, consider engaging a financial professional
specializing in divorce. They can help anticipate the long-term effects of
different settlement options while maximizing eligible deductions and tax
benefits.
Managing 401(k) investments is crucial to planning one's financial future. Two primary ways to manage investments are to do it yourself (DIY) or work with a financial professional.
However, the decision ultimately
depends upon comfort level, knowledge of investment strategies, and available
time. Here is what investors must consider for each method—DIY or financial
professional management—before making a decision.
The DIY method
A DIY investor must watch the market trends and adjust their
portfolio to manage returns while minimizing risks. This approach requires time
commitment, patience, and emotional self-control to avoid making impulsive
decisions during market fluctuations. In addition, a DIY investor must
understand the following:
Determining the DIY portfolio mix
A DIY investor must watch the market trends and adjust their
portfolio to manage returns while minimizing risks. This approach requires time
commitment, patience, and emotional self-control to avoid making impulsive
decisions during market fluctuations. Before investing, DIYers must consider:
DIY isn't for everyone
A DIY approach may not be suitable for everyone.
Understanding complex investment terminology and strategies requires a high
degree of financial literacy. Furthermore, not everyone has the time to closely
monitor their investment accounts, analyze market trends, and stay updated on
changing federal regulations related to 401(k) retirement savings plans and
other investments.
Financial professional management
On the other hand, hiring a financial professional to manage
one's 401(k) can take a significant weight off one's shoulders. These
professionals have the qualifications, experience, and skills to navigate
investing. Investors engage with financial professionals because they:
When it comes to investing, we often let our emotions sway
us. Financial professionals can help maintain objectivity in various
situations, enabling them to make calculated and informed decisions about their
investments.
Determining the portfolio mix
Financial Professionals determine their clients' portfolio
mix through a rigorous and systematic process: understanding their clients'
financial objectives, risk tolerance, investment horizon, and market
conditions. Key to this process is aligning the clients' long-term financial
goals with an appropriate asset allocation strategy.
Financial professionals use a range of financial instruments
and strategies, including equities, bonds, mutual funds, real estate
investments, commodities, and derivatives, to work toward an appropriate
portfolio mix. The selection of these investments must employ the principles of
diversification and risk management to help manage returns while minimizing
potential losses.
Cost considerations
It's essential to understand that all investing comes with
fees. The fee structures on each investment can vary from a percentage to a
flat annual fee or a percentage of the total portfolio value, which affects
investment returns. It is, therefore, crucial to weigh the cost of each against
the potential benefits before deciding whether a DIY or professional management
approach is appropriate for you.
In conclusion,
deciding between managing a DIY 401(k) or hiring a financial professional
depends entirely on one's circumstances. Remember that the ultimate goal is to
grow your retirement savings efficiently and strategically, regardless of the
approach you choose.
Owning luxury assets such as exquisite homes, cars, yachts, and priceless art pieces requires safeguarding them against potential risks or loss.
This is where umbrella insurance comes into play, acting as an extra layer of protection above regular insurance policy coverage, shielding the owner from significant financial loss.
For those with substantial luxury assets, umbrella insurance is crucial for preserving investments and maintaining financial stability in the event of a loss, which can result in a decrease in value. However, there's more to know before purchasing this unique insurance.
Why purchase Umbrella Insurance?
Typically, standard insurance policies pay up to their limit. However, what if the damages are substantial and the claim's cost exceeds the policy's limit? Enter Umbrella Insurance—a comprehensive coverage policy that kicks in when the regular property insurance policy is maxed out.
The risks associated with luxury assets are often higher. For example, a multi-million-dollar home has more value at risk than a typical suburban house, and a high-end luxury car may be more liable in the event of an accident.
For instance, consider an incident where a guest at a luxury property suffers from an unfortunate accident and decides to sue. The homeowner's policy might cover the medical bills up to its limit. Still, if the affected party files a lawsuit demanding extensive compensation, the cost could exceed the policy limits. Umbrella insurance helps protect assets from premature liquidation, allowing the lawsuit's claim to be paid.
Who may benefit from an umbrella policy?
One common misconception about umbrella insurance is that it is only for wealthy individuals. While those with significant luxury assets may benefit from this coverage, it also applies to others who are potentially exposed to expensive liability claims.
What does umbrella insurance cover?
In addition to protecting luxury assets, umbrella insurance often covers scenarios not included in typical insurance policies.
How much does umbrella insurance cost?
The cost of umbrella insurance is relatively low compared to its coverage. Premiums can range from a few hundred to a few thousand dollars per year, depending on the amount of underlying coverage and the level of risk associated with one's lifestyle and assets. Umbrella insurance policies typically start at $1 million and can go up to $50 million or more.
Understanding the nuances of umbrella insurance can be challenging, mainly due to its flexible nature and wide coverage area. Therefore, discuss your coverage needs with a financial or insurance professional before purchasing umbrella insurance, especially if you possess substantial luxury assets.
Treasury bills, often referred to as T-bills, are considered a secure and reliable investment option suitable for some investors. Governments worldwide offer this option, enabling investors to allocate funds in a low-risk environment while earning a return.
While the safety of T-bills may be a significant attraction for investors, they typically offer lower returns than other investment options, such as stocks, bonds, or mutual funds. Understanding this trade-off between risk and reward is necessary to make an informed decision. Therefore, investors must approach T-bills strategically while considering the following tips.
1. Understanding what T-bills are is essential
A T-bill is a short-term government debt issue with a maturity period ranging from a few days to 52 weeks. It is sold at a face value discount, and the return on the investment is the difference between the purchase price and the price paid by the government at maturity.
2. Identify investment goals beforehand
Evaluating one's financial goals before investing in T-bills is essential. They may be suitable if one aims to earn a consistent return, albeit with lower yields compared to higher-risk investments.
3. Determine where to purchase
Investors can buy T-bills in various ways.
Treasury Direct—This online platform allows users to buy T-bills directly from the U.S. Department of the Treasury and offers various convenient features, including automatic reinvestment of matured bills.
Auction or secondary market—Investors can also purchase T-bills through an auction or a secondary market. The price may be less than the face value when purchased at auction.
It's essential to note that the place of purchase may determine the return on investment at maturity.
4. Consider T-bills as a diversification strategy
Diversifying an investment portfolio with T-bills may be a suitable strategy. While T-bills seek safety, they are not known for providing high returns compared to other investments. Therefore, balancing the portfolio with a mix of high- and low-risk investments may offer a more suitable approach to stability and growth.
5. Understand tax implications
Interest earned from T-bills is exempt from state and local taxes but is subject to federal tax. Therefore, it's essential to understand the tax implications before investing.
6. Monitor interest rates
Prevailing interest rates heavily influence the return on T-bills. When interest rates rise, the value of existing T-bills tends to fall, and vice versa. Therefore, it is vital to watch economic news before deciding when to buy or sell T-bills.
In conclusion, T-bills offer a secure and straightforward investment method. However, every investment should be considered not in isolation but as part of a broader financial strategy. Therefore, consulting with a financial professional may be beneficial in making a more informed decision before investing in T-bills.
Disclosures: U.S. Treasury bills do not eliminate market risk. Bonds are subject to availability and market conditions; some have call features that may affect income.
Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.
Investment advisory services are offered through Wealth Watch Advisors, an SEC-registered investment advisor. Neither Wealth Watch Advisors or J. Martin Wealth Management, LLC are endorsed by the Social Security Administration or any other governmental organization. Note, registration with the SEC does not denote a certain skill level or guarantee the success of an investment strategy. Wealth Watch Advisors and J. Martin Wealth Management, LLC are independent of one another.