If you’re headed for, or already going through a divorce, you already know that it’s difficult. What could add to the anxiety of gathering your financial records, dividing households, and trying to reach a marital settlement agreement? Taxes.
If you are headed for divorce, or if you are recently divorced, you will soon be coping with different tax issues, such as the filing your own tax return and possibly claiming the “dependency exemption” for your children (if any). In the spirit of the approaching tax season, we wanted to go over divorce and how it affects a divorcées taxes.
What is your filing status?
For starters, you’ll need to determine your filing status. If you were officially divorced by midnight on December 31 of the tax year, you would file separately from your ex-husband or wife. If you are the custodial parent and you’re the parent receiving child support, you may qualify for the desirable “head of household” status.
If you’re the noncustodial parent, you will be filing as a “single” taxpayer, even if you were married for part of the tax year. Your filing status all comes down to your marital status on December 31.
Spousal support is tax deductible.
Per the Internal Revenue Service, spousal support is deductible for the paying spouse and the receiving spouse must include the support in their income. Meaning, spousal support is counted as taxable income for the receiving spouse.
Child support is not tax deductible.
Unlike spousal support, child support is not tax deductible, nor is it counted as income.
Which parent claims the dependency exemption?
As a general rule, it’s the custodial parent who claims the dependency exemption on their return. However, the noncustodial parent can file the dependency exemption for a tax year if the custodial parent signs an IRS Form 8332 (Release of Claim to Exemption for Child of Divorce or Separated Parents), and the noncustodial parent attaches the signed form to their tax returns.
How does my child qualify as a dependent?
In order for you to file the dependency exemption, you must be the custodial parent and your child must qualify as a dependent. To qualify as a dependent, your child must be a biological child, a stepchild, or a foster child under the age of 19, and he or she must have lived with you for more than half of the tax year.
Follow the IRS’s rules about spousal support.
In order for the paying spouse to deduct their spousal support payments, they have to make sure that their payments “qualify” as spousal support. Alimony does not include child support, noncash property settlements, payments to keep up the paying or supporting spouse’s property, or use of the paying spouse’s property.
You cannot deduct spousal support if you still live together.
Even if you are legally separated or officially divorced, you cannot deduct payments to your spouse as spousal support so long as you are members of the same household. If you both live in the home that you lived in while married, it still counts as “one household” even if you sleep in separate bedrooms.
If the dependency exemption is an issue, file your taxes first.
If you intend to file the dependency exemption for your children but your ex says that he or she will file the claim instead, file your return first. Since you already claimed the dependency exemptions for your children, the IRS will make your ex prove that they are entitled to the exemption under the law.
Certain legal fees may be deductible.
While most of the legal fees associated with your divorce are not tax deductible, any professional advice that you received about the tax consequences of divorce can be used as an itemized deduction on your Schedule A.
Consider the IRS’ credit for childcare.
If you are the custodial parent and you have to pay for childcare for children under the age of 13 so you can work, you should take advantage of the childcare credit, which covers a portion of costs of childcare.
While a noncustodial parent can claim the dependency exemption if their ex-spouse signs the IRS Form 8332, that is not the case with the childcare credit. Only the custodial parent (the one receiving child support) can claim the credit for childcare expenses.
If you’re an employee, you should change your withholding on Form W-4.
If you’re going to be receiving spousal support, remember, it’s taxable income. You may want to have extra taxes withheld from your paycheck to ensure the new tax liability is covered at tax time.
If you’re employed and you’re paying support, you may be able to claim one additional exemption for a certain amount of deductions, spousal support included. Contact your tax professional for further advice on this matter.
What to do if the withholding isn’t enough.
Are you concerned that your withholding will be insufficient to cover your taxes for the upcoming year? If so, we recommend setting up quarterly estimated tax payments – this way you will have enough to pay for your tax liability and you won’t owe taxes and penalties when your taxes are due.
Are you getting divorce soon?
If you are getting divorced in the near future, you will need to give some serious thought and consideration into the above information. To learn more about the tax consequences of divorce, we urge you to contact Claery & Hammond, LLPto schedule a free case evaluation with one of our Los Angeles divorce lawyer.