What We Can Learn from Kim Kardashian about Year end Tax Planning

It’s not often that talk about taxes hits celebrity blogs and gossip sites, but the recent hasty divorce application of TV reality star, Kim Kardashian, has made the headlines partly because of how Uncle Sam will affect her fortune.

Kim Kardashian

Kim Kardashian filed for divorce after only 72 days of marriage. The financial and tax concerns for her will include dealing with spousal support, and retirement accounts and capital gains. When dealing with capital gains, you can exclude up to $250k if single and $500k if married on the sale of marital home. If one spouse moves out and the other stays, the staying spouse’s time counts for both spouses. Rule is that you need to have lived in the house for 2 of  5 years.

Alimony is taxable income to the recipient, and it's tax-deductible to the payor. Child support is not taxable income of the recipient, and it's not tax-deductible to the payor. Preferred payment depends on if you are the recipient or the payor.

If you are divorced as of 12/31, your filing status is  single, even if you and your spouse lived together more than half the year.  If you are not divorced, but lived apart the last 6 months, you can either file single or head of household if dependents are involved. Your marital status for tax filing is set as of the last day of the year.

 One caution about filing jointly. Signing a joint return exposes both spouses to liability. There is a principle called the "innocent spouse" rule that allows a spouse to escape liability in a few cases.

Watch my Year End Tax Planning Webinar for more information HERE