Many people find adjusting to life after a divorce quite challenging. Between finding a new place, budgeting for a new income and working with an ex on childcare, divorcing couples may overlook other important issues.
For example, recently divorced couples must file their taxes in a new way. Understanding what to do in this complicated process can help individuals avoid mistakes when filing.
Changes to tax filing
Individuals must account for a few changes when they file their taxes the first time post-divorce. The divorce agreements will determine the specifics of alimony, childcare and even filing status. Taxpayers should keep in mind the following items:
- Tax filing status: The timing of one’s divorce can have an impact on filing status. Couples divorced by the end of the calendar year, married couples who have not lived together for six months and those with separation agreements must file under a different status — single or head of household. Couples planning to divorce, but are still married, can file as married or as married filing separately.
- Claiming dependents: The custodial parent usually claims any dependents on their tax returns. With multiple children, co-parents can split the dependents as they see fit, but keep in mind that the parent with greater income will receive a larger tax break. Non-custodial parents can deduct a child’s medical costs.
- Alimony and child support: These payments differ in allowed deductions. Payers may deduct alimony from their return, but not child support. The recipient must list alimony as taxable income. Depending on one’s lawyer, these payments can combine to reduce taxes, but these arrangements are unreliable.
- Division of property: Married couples may transfer property between spouses without incurring additional taxes. Sorting this out before signing the divorce papers can save both spouses a lot of money in tax season. Spouses can also split the profits from selling joint property. One spouse may wish to purchase the other’s share of a family home, but make sure to consult with a lawyer or accountant to minimize the owed taxes.
Consult with a lawyer for more information
Individuals with questions about divorce can reach out to a local attorney for answers. A lawyer can help assess any legal claims involved in the divorce, draft the divorce agreements and take measures to minimize owed taxes.
