If you are in the midst of getting a divorce or are recently divorced, taxes might not be at the forefront of your mind, but you still need to take the time to understand the impact it could have on your taxes. Everyone knows that divorce can affect your finances, but rarely does the topic of taxes arise in these conversations.
Below are some of the key tax tips you should keep in mind while filing your taxes:
- Child support: These payments are neither tax deductible, nor are they taxable, so regardless of whether you end up receiving or paying child support, this will not impact your taxes. However, while child support has no impact whatsoever on your taxes, child exemptions do, and they generally go to the parent who wins child custody. Child exemptions can be quite sizeable, so if your divorce is not relatively civil, things could get ugly.
- Head of household status: The ex-spouse who gets to claim head of household filing status on their income tax return is typically entitled to a more generous tax bracket and a bigger standard deduction. To qualify, you need to file your own tax return and you and your spouse must not have cohabitated within the last 6 months of the tax year. Additionally, you must have a qualifying child living with you for longer than 6 months of the year, even if the child can be claimed as a dependent on your ex’s tax return.
- Alimony: On the other hand, if you are paying alimony, you can deduct these payments, regardless if you itemize deductions. If you are making voluntary payments outside of a divorce or separation decree, they will not be tax deductible. If alimony payments are being made to you, the money is taxable in the year that you receive it and it is not subject to tax withholdings, which means you might need to increase the tax you pay during the year to avoid a penalty. To accomplish this, you can make estimated tax payments or choose to increase the amount of tax withheld from your wages.
- Spousal IRA: If, by the end of your tax year, you receive a final decree of divorce or separate maintenance, you cannot deduct the contributions you make to your ex-spouse’s traditional IRA, though you might deduct contributions made to your own.
- Healthcare: Even if you lose health insurance coverage as a result of your divorce, you are still required to have coverage for every month of the year for yourself and any dependents you claim on your tax return. If you are divorced or legally separated during the tax year and you and your former spouse are enrolled in the same qualified health plan, you will both have to allocate policy amounts on your separate tax returns to determine your premium tax credit and reconcile payments made on your behalf.
Ultimately, whether or not you experience any savings on your taxes as a result of a divorce will depend entirely on your specific circumstances.
Contact Friedman & Friedman PLLC, Attorneys at Law
Moving forward with the decision to divorce is not easy, even when necessary. Instead of trying to field your way to this complicated and emotional process, hire an attorney who will help you navigate every step with compassion and efficiency. At Friedman & Friedman, Attorneys at Law, we provide skilled legal counsel and results, all at an affordable cost.
For the experienced representation you deserve, contact our office at (516) 688-0088 to speak with a lawyer.