Business Guides

How Does Getting A Divorce Affect Your Taxes?

Divorce is an emotionally and financially draining experience. Once both parties have reached an agreement on child custody and the division of property, they must think about filing their taxes. Tax time poses a perplexing situation for divorcees. It is important to know under what marital status to file, what qualifies as a deductible expense and what monies one must declare.

Divorce Taxes
Neoloky / Pixabay

[REITs]

Q4 hedge fund letters, conference, scoops etc

Filing Tax Forms

Knowing When to File as Single

If a person is single on New Year’s Eve the IRS considers them to have been single for that entire year and that person must file taxes as a single. If a couple divorces on January 2nd, they can file as married for the entire year. However, there are some loopholes in the law. If one parent has custody of a child, that parent may claim themselves as the “head of household.” A head of household may claim one extra deduction on their taxes. Hence it might be in the best interest of a divorce primary parent to file their taxes separately.

How to Determine Head of Household Status

The IRS considers a person a head of household when they pay more than 50 percent of maintaining a household and have a dependent. The 2018 tax reform bill has eliminated personal exemptions, so filing as a head of household can save a taxpayer a considerable amount of money.

Knowing What to Deduct

Deducting Alimony Paid

It is always important to have a divorce attorney prepare a clear alimony arrangement when finalizing a divorce. If you were divorced before January 1, 2019, Alimony payments are tax deductible, but if a person gives money or goods to an ex-spouse outside of the alimony agreement, that money cannot be claimed as a deduction. Child support is not deductible in any case.

Declaring Alimony Received

A person who receives alimony must declare that income on their tax return. An alimony paying spouse is under no obligation to deduct taxes from payments, and a person receiving payments may find themselves owing money at the end of the year. Some alimony recipients choose to have more money deducted from their wages so they will not end up owing as much at the end of the year.

If your divorce is final after 2019, you will be subject to the Tax Cuts and Jobs Act. This law states that alimony will no longer be considered income for the recipient and cannot be deducted by the payer.

Deducting IRA Contributions

An IRA is considered community property in a divorce proceeding. One spouse may be entitled to a portion of the other spouse’s IRA. If an individual is not divorced by December 31 of a calendar year, they are allowed to deduct any contributions they make to an ex-spouse’s IRA.

Finding a Good Attorney

If you are looking for a divorce attorney in Schaumburg, IL, you must make sure they are well versed in family law, have the patience to act as a negotiator and are dedicated to researching your case and getting you the best possible deal in a divorce agreement. Although divorce is difficult for everyone, involved knowing the law and finding good legal representation can make filing your post-divorce taxes easier.