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Divorce brings tax savings to high-income couples

When it comes to divorce, many Colorado spouses bemoan the negative impact that the change in family structure will have on their finances. Issues of property division can decimate one's savings and investments, and issues surrounding alimony and child support can also pack an expensive punch. However, according to one recent report, some high-earning couples could walk away from divorce with significant tax savings.

One way that taxes can lessen after divorce involves two new taxes imposed by the Patient Protection and Affordable Care Act. These taxes will begin in 2013, and add an additional 0.9 percent on self-employment and wage income and an additional 3.8 percent on one's net investment income. The taxes come into play for single filers when their adjusted gross income reaches $200,000. A married couple is only allowed an additional $50,000 before the taxes kick in.

Another example is found in changes to allowable itemized deductions and personal exemptions. These benefits can be reduced by as much as 80 percent once income reaches certain thresholds. For married couples, that level is $300,000. If those spouses were single, each would have to meet a threshold of $250,000 before these benefits would phase out.

It would seem that in cases in which both spouses earn a higher-than-average income, there are significant tax advantages to filing as single people rather than a married couple. For those who would wish to lessen their tax burden by simply filing individual returns, it is important to note that the IRS only grants these tax benefits to unmarried filers. Colorado readers who fall within these tax brackets may wish to factor these and other tax changes into their post divorce financial planning.

Source: Forbes, "Want To Save On Taxes? Get A Divorce," Tony Nitti, Jan. 22, 2013

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