Teaching Tax Flow: The Podcast

In Episode 186 of the Teaching Tax Flow podcast, John and Chris cover the vital yet often overlooked topic of taxation in the context of divorce and separation. As disruptive as these life events are, understanding the tax implications can prevent financial surprises and help navigate the complexities with greater confidence. Their discussion aims to simplify the transition for those undergoing these changes, offering listeners a much-needed perspective on effectively managing tax-related aspects.

This episode shines a light on the broader landscape of tax issues linked with separation, such as filing statuses, alimony, property transfers, and more. Chris provides valuable insights into how filing status is determined and how the rules about alimony deductions have shifted since the Tax Cuts and Jobs Act. He also highlights the critical nature of understanding property transfers between spouses, the significance of retirement account distributions, and the nuances of child-related tax credits post-divorce. The episode underscores the importance of professional tax planning during such transitions, demonstrating how professional guidance can mitigate unexpected tax liabilities.

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Strategic Associates, LLC
Roger Roundy
http://www.linkedin.com/in/roger-roundy-86887b23

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  • (00:00) - Tax Considerations During Divorce or Separation
  • (04:20) - Tax Implications of Divorce and Filing Status Considerations
  • (09:10) - Navigating Alimony and Child Support Tax Implications
  • (11:20) - Key Tax Considerations During Divorce and Property Division
  • (18:24) - Building a Personal Board of Directors for Tax Planning

Creators and Guests

Host
Chris Picciurro
Founder, Teaching Tax Flow
Host
John Tripolsky
VP of Marketing, Teaching Tax Flow

What is Teaching Tax Flow: The Podcast?

Welcome to “Teaching Tax Flow: The Podcast”, the show that’s all about demystifying taxes and helping you keep more of your hard-earned income in your pocket.

Hosted by tax experts from the Teaching Tax Flow team, this unfiltered (but clean) podcast is designed to empower you with the knowledge and tools you need to confidently navigate the world of taxes. We’ll cover everything from understanding tax laws and regulations to maximizing deductions and credits.

In each episode, we’ll break down a specific tax-related topic in a clear and accessible way, providing practical tips and strategies you can use to optimize your tax situation. We’ll also answer listener questions, share the mic with amazing guests, and share real-world examples to help illustrate key concepts.

Whether you’re a freelancer, small business owner, real estate investor, or just looking to understand your taxes better, this podcast is for you. So tune in, take notes, and start building your confidence in taxes today.

Produced and hosted by Teaching Tax Flow.
www.TeachingTaxFlow.com

John Tripolsky:

Welcome back to the Teaching Tax Flow podcast, everybody, episode 186. We are actually gonna be discussing a topic that you probably have not heard talked about here on the Teaching Tax Flow podcast. So as we get into this one here, we are gonna dive into the waters of what do you actually have to consider when it comes to taxes in a divorce or even a separation. So again, not the happiest of conversations. However, what we're about to talk about will definitely make you happier in the long run because you're not setting yourself up for maybe some surprises that may, you know, hit your bank account.

John Tripolsky:

So again, you do not wanna hear all this information from me. You wanna hear it from my esteemed cohost, Chris Picciurro. Welcome back to the show, buddy.

Chris Picciurro, CPA:

Oh, it's great to be back. This is a topic that's tough. I know, John. I mean, I'm in our age, we've had many friends, unfortunately, get divorced and or and or separated. However, there's people that we know.

Chris Picciurro, CPA:

You never know if you should say congratulations or I'm sorry. You know? It's just one of those things. But we're gonna just talk about the tax ramifications. And when you are going through a divorce or separation, John, that's always a big change.

Chris Picciurro, CPA:

But guess what? I have a change for you that's actually positive. I have a surprise for you.

John Tripolsky:

You're not trying to separate from me, are you? You're gonna replace me? Yeah. Oh my goodness.

Chris Picciurro, CPA:

Yes, man. My first my first podcast without a teaching tax law shirt, but I've got the hat that was nicely sent to me and John, I think that our our, you you know, our our accountants are probably not gonna like this, but I'm gonna say it right now. The first three people to put hat in the comments on our YouTube channel after this podcast goes out, we're gonna mail you one of these beautiful, pretty expensive trucker hats. So the first three, just type hat. We'll connect, and we will get your information and, and send you the complimentary teaching tax flow hat.

John Tripolsky:

Which, by the way, everybody that's watching or listening to this, and that's YouTube. Right? So we want it we want it on the YouTube channel.

Chris Picciurro, CPA:

YouTube. You just have to see

John Tripolsky:

this hat to make sure that you like it for one. I honestly had no clue that he was gonna bust this out, and it's kinda funny, Chris. I mean, we we both I have my gray and black one on today, and it kinda matches your colors. So and, you know, you're starting to be a marketing guy. See this?

John Tripolsky:

You're giving away free stuff. You're swagging it up.

Chris Picciurro, CPA:

You know? So I didn't even have to do my hair today, but I did it anyway. So it's it's changed in the air, you know, in my first, you know, episode recording with YouTube. So, gosh, we're at we've done over a year and a half episodes just on on YouTube alone, and we're coming up on, you know, four years here. You know?

Chris Picciurro, CPA:

First one first time writing this. So I got this hat giant, and, you know, sometimes these hats are, like, ugly or they're, you know, they're for marketing, but you wouldn't add this actually wore to a baseball game yesterday where I went out and watched some friends friends play. So so, yeah, man, I'm feeling good. And let's talk about as my appearance. And I don't know if I'm gonna bust this out for every episode.

Chris Picciurro, CPA:

You know? But Maybe I'll do my hair. About Divorcement.

John Tripolsky:

I'll do my hair. Yeah. I'll I'll wear I'll do my hair. You wear a hat. We'll completely screw everybody up.

John Tripolsky:

But, yeah, this this topic, right, like, as we started off. So it's not the it's not the happiest of things. Right? Like, it's a it's a change in life circumstances. Like, it's a huge thing.

John Tripolsky:

And, I mean, I personally haven't gone through this, but, I mean, I had plenty of separations with crazy exes, but not married to them. Thank gosh. But, you know, when something like this happens in somebody's life, right, it it almost seems natural that who would I mean, not who would care, but they're more concerned about other things that are happening right at that moment in their life, very short term. And, you know, taxes is something they're like, I'll get to it next year. It's nothing I can do about it now.

John Tripolsky:

However, I imagine that's probably the case, which by the way, everybody, we do not script these episodes, so I have no idea what Chris is gonna say with this. But, you know, it's things that I'm sure people can plan for to better set themselves up for a, you know, not such a kick in the you know what when it comes quote unquote tax time the following year and beyond. Right?

Chris Picciurro, CPA:

Absolutely. We're gonna lay out the seven most important considerations if you are going through a divorce or separation from a tax perspective and from a federal tax perspective. Right? Because there are some states that are community property states or, you know, you've got a lot of a lot of considerations. One thing to consider before we jump into this is that the IRS doesn't know your filing status until you report it.

Chris Picciurro, CPA:

Because that, you know, marriage certificates are issued by states or counties and so when you so a lot of times people think, oh, I've I've you know, I have a divorce. It gets reported to the federal government. It doesn't. So it comes down to self reporting. But let's jump in.

Chris Picciurro, CPA:

The first thing to understand is that your filing status is gonna be impacted, and this goes for anyone. Your filing status on the last day of the year is your filing status for the entire year. And that gets you know, that that can be confusing if you get married or divorced. It's like, oh, do I file by myself for half the year? Am I filing with my spouse?

Chris Picciurro, CPA:

So whatever your status is the last day of the year is your status the whole year. So if you were to become divorced on December 15, you're divorced for tax purposes that entire year. So that's something to understand.

John Tripolsky:

Now And with you saying that really quick, just to make sure that I I kinda explain this too for the dummies like me. Right? So you're saying so say we're we're in 2026 right now. Say that event, say somebody gets divorced in 2025. So in calendar year 2025.

John Tripolsky:

Right? When they go to file their taxes for tax year 2025. Even though it's 2026, they're filing, doing paperwork, quote, unquote. Have been happening in '25. That's the whole year.

Chris Picciurro, CPA:

Someone someone could have their divorce finalized in February 2026, we have to look back at what their status was the last day of 2025 to determine their filing status. However, you could be legally married, but for tax purposes, not married. And that might sound funny. Here's how. If you are legally separated at the end of the year and you've lived apart for at least six months of that year, you are cons you could be considered unmarried for tax purposes and one each spouse could file single or one might file head of household.

Chris Picciurro, CPA:

The key is they have to match. Right? Because if I have someone that's filing married, filing separate and someone with other person's filing single, the IRS is gonna most likely send a letter to them. And we know a lot of times these types of situations can drag on. So if someone says, you know, if if a taxpayer is saying, you know, I'm getting divorced.

Chris Picciurro, CPA:

I'm separated. It's December 31. The first question is is, when did you guys become legally separated? And and have you been legally separated for at least six months of that year? And if so, you might be able to you may be considered unmarried at the end of the year.

Chris Picciurro, CPA:

Now is that good, bad, indifferent tax wise? It just depends. But what we wanna do is we wanna make sure you are filing with the correct filing status. And, you know, we have so a lot of content in the teaching tax look community and and and on this YouTube channel and on this podcast because a lot of times people focus on the numbers of a tax return. There's so many other things on a tax return that are very, very important to get correct.

Chris Picciurro, CPA:

Filing status. Are you dependents, Social Security numbers, innocent little questions like, have you have you dealt in digital assets this year? Yes or no? Do I allow the IRS to to, you know, to talk or for lack of better term to my tax professional? You know, there's there's a lot of interesting things and maybe we'll do an episode one day on all the important things on our tax return that has nothing to do with a number.

Chris Picciurro, CPA:

Could be interesting. It's ironic that

John Tripolsky:

you just said that because I've seen in an email. Actually, it was an IRS update email that went out maybe about a month or two ago, and it talked about how more than ever their forms and the process is more detail oriented, AKA more complex than ever because our lives are getting more complex. Like you mentioned digital assets, all this stuff.

Chris Picciurro, CPA:

Like we said, there's no easy tax return. You know? I'm gonna start saying easy is a four letter word because I

John Tripolsky:

like that.

Chris Picciurro, CPA:

Alright. So if we gotta consider your filing status. And remember, you're not required to file jointly unless now there could I've seen divorce decrees where the the the spouse's consent to file jointly. It just hashes a lot of considerations. Let's look at number two, alimony versus child support.

Chris Picciurro, CPA:

Now this used to be a big issue before the tax cuts and jobs act. Pre before the cat tax cuts and jobs act, alimony was a deduction for the person paying it and income for the person receiving it where child support was not taxable. There's not a deduction for the person paying it, not income for the person pay, receiving it. Here's what happened in my humble opinion. There are a lot of people paying alimony.

Chris Picciurro, CPA:

Every person that paid alimony took the deduction they're they're entitled to, and not many people who picked up alimony reported it as income. So the IR one one of the reasons I believe the Taxes and Job Act said, look, this matching is is crazy. Alimony is not deductible anymore. So if you are a payer and you're either receiving or or paying alimony, you have to look back at when that agreement was in place. And if it was pre 2019 or pretax cuts and jobs act, you could be paying you know, you might be able to deduct alimony paid and you'd have to pay tax on the alimony receive.

Chris Picciurro, CPA:

So that's something that that used to be a big issue. It's to, you know, again, if if a taxpayer says, while we're receiving alimony, the first thing we have to do is like, when did that agreement come into place? And that'll dictate if it's taxable or not on the federal return.

John Tripolsky:

And here I am. I'm chuckling a little bit if anybody's watching this, kinda smirking over here. I could imagine what those conversations are like on the IRS's side when they're like, oh my gosh. What do we do? Of course, everybody's claiming it as a deduction, and, of course, not everybody's claiming it as income.

John Tripolsky:

I mean, it's like there's a lot of There's exec go to there. Right? What a disaster.

Chris Picciurro, CPA:

And then you and and, you know, then you have issues with, well, you're supposed to pay x amount of child support, x amount of alimony. What if they shorted the child support? Do they if they paid part of it as some alimony, some child support? It was messy. So the IRS, under my opinion or the federal government just said, look.

Chris Picciurro, CPA:

Let alimony is not a it's a tax neutral thing. We're not we're not gonna tax it. We're not gonna give you a deduction. So the third thing, is gonna be property transfer between spouses. It's really important in real estate.

Chris Picciurro, CPA:

Right? So let's say spouses own a home together. We're gonna touch on that in a little bit. Let's say they own rental properties. You know?

Chris Picciurro, CPA:

And the part of the divorce decree says, alright, John, you know, let's say Joe and Susie are married. They own a commercial building worth a million dollars. They don't have any debt on it. They get divorced, and Susie's gonna retain the building, but she owes Joe half of the equity of that building. Right?

Chris Picciurro, CPA:

Well, what if they don't have $500,000 of cash? Now we've gotta figure out what to do. Susie might have to get a mortgage and pay Joe off of his equity, or they might maybe they don't wanna sell the building. Maybe their business operates in the building, so it gets really sticky. So the division of property between spouses, especially real estate, but it could be partnership interests, it could be investment assets, is critical.

Chris Picciurro, CPA:

And then the other thing is, what if they bought that building for $100,000 and who's gonna pay the gain on it? Right? I mean, is know, if it's it's gosh. It's it gets very, very tricky. So, again, we wanna hit the considerations.

Chris Picciurro, CPA:

We might have some more content coming to Teaching Tax Flow based on diving deeper into some of these. So so if you have a if you have a family law attorney that you know and you're watching or listening to this, send us a message, put their name in the comments. We might reach out and and get some more content from them. But But yeah, property transfers between spouses, division of retirement accounts, right? IRAs, 401ks, this gets crazy and there is some relief for spouses that that receive a part of a retirement account where they can take the money out of their retirement account.

Chris Picciurro, CPA:

They have to pay federal tax on it, but they don't have to take take that 10% early distribution penalty if it but it has to be done through a QUADRO. I know I'm using another acronym, qual a qualified domestic relations order. So the point is this. Think about retirement accounts. Right?

Chris Picciurro, CPA:

Once the spouse is separate, they're gonna have different tax rates. So the planning involved here is, okay. Does does one spouse maybe in the lower tax rate take more of the retirement assets? And can that spouse maybe take some of that money out of those retirement assets at a lower tax rate without penalty with the right planning that could happen.

John Tripolsky:

And you said the keyword there planning. Right? So, I mean, not not saying, hey. You know what? Your CPA is a marriage counselor.

John Tripolsky:

Hopefully, they're not a CPA and a marriage counselor. It might be a little complicated, but I imagine it's always very helpful when somebody reaches out ASAP. Right? Talks to their tax professional and says, hey. Look.

John Tripolsky:

We're likely going to be there's gonna be a change in our filing status for the upcoming year. Right. Right? And you can help them with that planning. So it's not just, hey.

John Tripolsky:

What happened? Oh, crap. We should have done something six months ago. It would have avoided us. You know, now it's too late, etcetera.

John Tripolsky:

Right?

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Chris Picciurro, CPA:

And usually, it's very common for that year of a divorce that there's gonna be more tax extensions filed because in in it's I mean, I've been in you know, doing this over well over twenty years. I've seen almost every circumstance I may out there with this because sometimes you don't I mean, you're hoping that there's some type of amicable arrangement or at least a formal arrangement, and that dovetails into my fifth is dependency rules and child related credit. So let's say there are dependents involved. Who's claiming the children as a dependent? Who's taking the child tax credit?

Chris Picciurro, CPA:

Who's paying for the child care? There's just so many things that you can think about, especially with the kids. Five twenty nine plans. I mean, there's just tons of stuff. I'm dealing with a case right now, which is number six, sale of the marital residence, right?

Chris Picciurro, CPA:

If they, what might happen is neither of them might want to retain the marital residence and, or maybe they can't afford to and they have to sell it. How is that? How is that divvied up? Is it fiftyfifty? Did one of those spouses own it before the other spouse, before they are married and one moved in, there's so many considerations.

Chris Picciurro, CPA:

So sale of that marital residence, if they own that property is my sixth. My seventh, the final one is going be those basis carryover and passive loss limitations. So John, this is something that people don't really think about. And we had a case in our private CPA practice. We had a this was quite a few years ago.

Chris Picciurro, CPA:

We had a client with about $300,000 of past activity losses. And the client, you know, typically when you're have a the situation, you're gonna it's very difficult to work with both, spouses, after separation and just because you've got conflicts of interest to deal with. But the client that we retained, unfortunately for him, his spouse and his former spouse's, legal counsel weren't very tax savvy. And in the agreement, he got to keep all of the passive activity losses because they're which which were, you know, $300,000 of passive activity losses, that's worth the $100,000 of tax down the road when he sells property.

John Tripolsky:

Right. Right.

Chris Picciurro, CPA:

So you know? And you've gotta look at making sure we have capital loss carry forwards that go with the spouses. So, again, we don't want to get too deep in the woods here, but my point is this. There are a lot of considerations when you're going through a divorce or separating. Many times and like you made a good point.

Chris Picciurro, CPA:

Many of these things are nonfinancial and or maybe they you know, someone isn't there's we got a lot on their mind, there are other factors like where are our kids gonna go to school? Where are we gonna live? What you know, there's just a lot of dynamics there from a tax perspective. There are a lot also. So let me run down these seven real quick one more time.

Chris Picciurro, CPA:

Let's put a bow on this. And, again, if you have any questions, any comments, comment on this YouTube. Or if you're listening on your podcast, know what? Jump into our Defeating Taxes private Facebook group. Just go to defeatingtaxes.com.

Chris Picciurro, CPA:

It's free. You can post anonymously. We know this is a sensitive topic. So what do we need to consider? Filing status, treatment of alimony or child support payments, property transfers between spouses, including stocks and real estate, division of retirement accounts, so that includes IRAs, 401s, and maybe these quadros, dependency rules and credits related to the kids, If you have a marital residence, selling it.

Chris Picciurro, CPA:

And then finally, basis carryover and passive activity loss limitations. Not the most exciting things to think about, but definitely talk to your tax professional. And these are one of those triggering events where a lot of times someone may have self prepared their return that it's time to talk to a tax professional and invest the time and effort into planning as well.

John Tripolsky:

Absolutely, Chris. That's a great great place to kinda wrap this up, and I'll say a couple things, not just related to this podcast specifically, but really, we're teaching Tax Flow builds on things. Right? Like, all the content, you know, you and I put out, I mean, a lot of this. Right?

John Tripolsky:

I I'm more of the audience and the average Joe. You're the one, you know, that's bringing the expertise. But looking at all of our content. Right? Say we're at this one.

John Tripolsky:

Somebody says, oh, this is great. I found what I need about you know, I'm going through this or going to be going through this. But thinking back, right, we've talked about personal boards of directors. Now what does that mean? Look at listen to that podcast.

John Tripolsky:

That's your attorney. That's your, you know, insurance guy, your tax professional, all these things. Those people might be called off the pine. Right? You might call on them at some point in your life like this when all this chaos is happening.

John Tripolsky:

So why I say that, right, is our whole goal at TTF is to bring so much stuff together for you. So and that's just one example of when the earlier you take advantage of something, like building your personal board of directors, you're not gonna go and build a personal board of directors in the middle of a divorce. Let's be honest. Right? But you're gonna need those people pretty darn fast, and there's gonna be huge value there.

John Tripolsky:

So just think about that. And, Chris, I'm so happy you mentioned planning in there a bunch of times. Again, you're not a marriage counselor. Hopefully, you never become one because you're a damn good tax professional, and we don't want you change. But, you'll find the right people, utilize them, and just don't be afraid to communicate to people.

John Tripolsky:

You I think the, even with taxes. Right? I I know a buddy of mine that was talking to last week, and then I'll shut up is, you know, he's going through a very unique situation. There's a bankruptcy. There's all this stuff, and he's more afraid to talk to his tax professional about what's going on than actually anything else.

John Tripolsky:

It's like, dude, just say it. Talk to them about it. It'll set you up. People are more afraid to be judged than they are to find a solution, I think, sometimes. So don't be that person.

John Tripolsky:

Don't be afraid. Ask the right questions. And I can almost guarantee somebody's out there wanting to help you very, soon. So take advantage of it. Again, Chris, you've mentioned that offer about the free hat in there.

John Tripolsky:

If nobody's done that yet, do it because I know we're gonna kick these three away really quick. And then I'm gonna have to order more of them eventually. So alright, everybody. That's it for this one on the Teaching Tax Flow Podcast. We'll see you again next week.

Disclosure:

The information in this podcast is educational and general in nature. It reflects the opinions of teaching tax flow and does not take into consideration the viewer's personal circumstances. It is not intended to be a substitute for individualized financial, legal, or tax advice. Consult the appropriate qualified professional prior to making any decisions. Securities are offered and supervised through Cabin Securities Inc member, FINRA SIPC.

Disclosure:

Investment advisory services are offered and supervised through Cabin Advisors LLC, an SEC registered investment advisor. Chris Picciurro is a registered representative of Cabin Securities and an investment advisor representative with Cabin Advisors LLC. Teaching Tax Flow is an independent entity and is not affiliated with Cabin Securities or Cabin Advisors.