How Divorce Impacts Your Tax Filing

You have probably already started to realize that divorce can lead to many complicated personal and legal issues, but have you considered how your divorce will affect your tax filing? The following are some key tax issues that commonly arise during a divorce or separation.

Filing as Divorced or Married

Your filing status is determined by your marital status on the last day of the tax year. If you were still legally married on the last day of the tax year, then you must file as married even if you are currently divorced. This means that you can be married for the majority of the year and you still must file as divorced.  

You may qualify to file as single or head of household if you meet certain requirements such as:

  • You provided over half the cost of maintaining your home.

  • You are able to claim one or more children as a dependent.

  • You are still legally married, but you must file your tax return separately.

  • You lived in a different residence than your spouse for the last half of the tax year.

Always consult a trusted professional in order to determine whether or not you should claim single or head of household when filing.

Tax Filing and Divorced-Joint Returns

It's important to use caution if you plan on filing a joint return. Regardless of who prepared your taxes, you are legally responsible if there are any errors on the return. Be certain to review it carefully before signing and submitting. In general, filing a joint return results in a lower tax burden. Consult with a professional in order to determine whether or not filing jointly is the right choice for you.

Dividing Assets

Florida is considered an "equitable distribution" state which means if you and your spouse cannot come to an agreement regarding property division, then the Circuit Court will divide your assets in a manner that they deem "fair". In many cases this will result in a 50/50 split, but this can vary depending on the situation. In Florida, any assets you gain in the divorce process are not subject to income taxes. In general, when you take possession of property during the divorce process this transfer of property is done tax-free. For the purpose of tax filing and divorce, these transfers are considered gifts.

Child and Spousal Support

  • Regardless of whether or not you are providing child support or receiving child support, this will have no effect on your taxes whatsoever. Child support is considered to be "tax-neutral" which means it is neither taxable nor tax deductible. As long as child support payments are made properly through the court or support agency, then neither spouse will need to worry about the tax implications of child support.

  • Spousal support, on the other hand is considered a taxable event. The recipient of spousal support must include these payments as income and the paying spouse can deduct these payments. If you anticipate tax issues with your spousal support, be certain to take this into consideration when working out your settlement.

Dealing with Dependents

If you are divorced or separated, you will only be able to claim a dependent minor child on one tax return. Typically the spouse who is the custodial parent is permitted to claim the child as a dependent, but there are circumstances in which the custodial parent may choose to waive their right to claim the child. In this case, the noncustodial parent will be able to claim the dependent child.

In amicable divorces, parents may choose to trade off claiming a dependent each year. Custodial parents can waive their right to claim a dependent child by attaching IRS Form 8332. Alternating years is a great way to ensure both parents can take advantage of this tax filing and divorce benefit. When divorced spouses have more than one child, the court will often split the tax benefit between both parents. If both spouses are eligible to claim the dependent and the child has lived with both parents for equal time, the parent with a higher AGI (adjusted gross income) can claim the child as a dependent.  

Itemized Deductions with Tax Filing and Divorce

Itemized deductions are another tax area that will be affected by your divorce. If you have made any charitable donations throughout the year, you can claim these deductions if you made the donation from your own account. You can only claim half the cost of donations and contributions made from a joint account. If you are in the process of getting a divorce or were divorced within the past year, it's likely you had some legal expenses. Legal fees related to your divorce are tax deductible. However, you cannot deduct personal legal matters.

Before you make any major decisions regarding your taxes, it is important to consult an attorney in order to understand all your options. Every situation is different, so it's always best to get individual advice. Worrying about tax filing and divorce can be overwhelming and confusing. For more information or help navigating your divorce, contact Kenny Leigh & Associates.

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