With issues such as spousal support, child support and child custody now being a part of your life, it’s important to be prepared before filing taxes after divorce.
Tax day is almost here. If you have recently gone through a divorce, you may or may not have thought about how it will affect your financial status for the upcoming tax season. Divorce can impact your taxes in a variety of ways, including filing with dependents, giving spousal support, and in a number of other areas.
Because divorce can mean significant changes in how you file your taxes, it is important to evaluate your status to ensure your information is filed correctly and you earn maximum deductions. If you are recently divorced, here are a few things to keep in mind when filing taxes after divorce this year!
1. What Is Your Marital Status for This Fiscal Year?
For tax purposes, your marital status is determined at the end of the calendar year. This means if you finalized your divorce on December 31, 2017, you would be considered single for your 2017 federal taxes. However, if you finalized your divorce on January 2, 2018, you would be considered married for the previous year’s taxes (in this case for the year 2017). If you are unsure about your marital status as it pertains to your taxes, be sure to consult a tax professional.
2. Tax Status with Dependents
Typically the parent who spends the most time with the children will have the tax exemption that comes with having children. The IRS does not allow parents to split claims for dependents if they have joint custody of their children. If parents share custody of the children, there are a number of potential solutions. They may opt to alternate years claiming their children as dependents. For families with multiple children, oftentimes each parent will claim a child as a dependent. This is another tax situation that varies from family to family, so when filing taxes after divorce, it is wise to consult a tax professional so they can help your family create an arrangement that works for everyone.
3. Are Child Support and Spousal Support Payments Deductible?
You will not be able to deduct child support payments from your taxes. The reasoning behind this is that child support is meant to be the financial commitment one parent contributes to the cost of raising their children, not simply a means of income for their former spouse.
However, spousal support payments are typically deductible and the tax burden is placed on the former spouse who is getting the support. Where child support is meant to be one parent’s half of the cost of raising a child, spousal support is meant to provide additional income for that party. Currently this payment is tax deductible for the person who is supporting the other spouse. However, under recent changes to the tax code, spousal support payments ordered in divorce decrees entered in 2019 and beyond will NOT be deductible. Because arrangements vary from couple to couple, this is another situation where consulting a tax professional is wise because there are some cases where even now spousal support is not deductible.
4. Property Taxes and Divorce
Finally, in terms of property taxes and divorce, you should not be taxed on shares of property you may receive in a divorce. Moving forward post-divorce, taxes owed when property was liquidated during the marriage would still be owed after divorce. Taxes that fall into this category may include capital gains and deferred taxes on pre-tax retirement investment. Some retirement accounts may also be transferred to your former spouse during divorce without penalty, depending on the situation.