How Does Divorce, Retirement, or Moving Affect My Taxes? Find Out on the Money Confidential Podcast

On the fifth episode of Money Confidential's "Taxes in Ten" podcast series, learn the tax implications of these life changes.

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No one wants to think about taxes when going through an emotional life change—like getting a divorce, starting retirement, or moving—but it's all a part of the process. Just as discussed in last week's episode of the Money Confidential podcast—which covered the tax implications of marriage, parenthood, and homeownership—these milestone moments can drastically affect the way you file, so it's important to know the tax code ins and outs when going through major life changes.

On this week's installment of the "Taxes in Ten" series, we talked with Daria (not her real name), a Brooklyn-based listener who's currently finalizing her divorce from her husband. Daria and her husband's taxes were complicated enough during the time they were married: Her income mostly came from salaried W2 work, while most of his came from freelance 1099 work, and then they bought property, had children, and worked in multiple states.

"One of the things that I'm most excited to be finally divorced is to just have a single person tax filing again," Daria says. "But I want to get as much money back as I'm owed, and I know if I filed married filing separately I wouldn't get back as much money as I probably should."

To walk through the important considerations to take when getting divorced and filing taxes, Stefanie O'Connell Rodriguez talked with Kristin Myers, editor-in-chief of The Balance, and Caleb Silver, editor-in-chief of Investopedia.

Caleb Silver

"Divorce is a financial decision and it's an emotional decision. So you have to be thinking about that as you're having those discussions. If you have property together, perhaps you own a business together, perhaps you have debts that are in both of your names—all of that is affected when you get divorced and especially when you're filing your taxes.

— Caleb Silver

Your marital status as of December 31 in the calendar year controls your filing status, Silver explains. "So, if you're split up, but you aren't officially divorced before the end of the year, you can still file a joint return that might save you money—it might make things less complicated," he says. "Or you could choose the married filing separately status for the year you separate. So it really depends on when your actual divorce papers go through and when you're officially divorced, but usually, it's that last day of the year that you need to worry about."

Another life change that can change the way you do your taxes is retirement—but not necessarily in the way you'd hope. "By and large, you don't get a tax break by retiring," Silver says. "You're just no longer paying into a lot of the taxes you used to when you were a W2 employee. Now you're the beneficiary of those taxes if you need it, whether that's Social Security or Medicare, you're going to be offered those once you reach a certain age."

Myers also notes the Financial Independence, Retire Early (FIRE) movement, in which people are retiring early, in their 30s or 40s. "Unfortunately, a lot of the tax breaks that can come with pulling money from the retirement account do not apply to you if you are under the legal retirement age," she says.

If you plan to move across state lines after retirement—or at any point in life—that can also change the way you do your taxes. For non-retirees, the changes mostly stem from where you're getting your income. "If you earn half of your income from Florida, half of it from New Jersey, both states are going to want a cut," Myers says.

There are some states, like Florida or Texas, however, where you can get tax benefits and don't have to pay state income taxes. "Now, for retirees that aren't generating a lot of income, [that's] not such a big deal," Silver says. "But if you're getting income—either from your investments or you cross that threshold where your Social Security check is starting to get taxed as well—that's why a lot of folks are moving to states with no state income tax to avoid that."

For more on the tax implications of these major milestones, check out episode five of Money Confidential's six-part series, "How does divorce, retirement, or moving affect my taxes?" on Spotify, Apple Podcasts, Amazon, Player.FM, Stitcher, and wherever you get your podcasts.

Read the full transcript.

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