If you are in the middle of a divorce, then chances are you are already thinking about your finances – going from a two income household to one is likely to be at the forefront of your mind, at least some of the time. However, what you may not be aware of is how the divorce can affect the taxes that you are paying. Being newly single, you may even need to file your own tax return, which can be a daunting prospect if you have not done this before. Regarding your taxes after divorce, there are a few things that you will need to take into consideration.
Work out your tax return status. This depends on whether the divorce has been finalized by the deadline of December 31. If the divorce had come into effect by this date, then you and your former spouse will need to file separate tax returns, regardless of whether you were married for the majority of the tax year. If you are the primary caregiver for any children, then you are classed as the head of the household, which is more favorable than being a single taxpayer.
Child support and alimony are considered differently on your tax return. We will look at child support first. If you are paying money that is classed as child support, then this is not tax deductible. If you are receiving child support, then it is not classed as income, and tax is not paid on it. Alimony is different – it is tax deductible if being paid, and the recipient needs to consider it as taxable income. If, however, the money is described as “family support” in your divorce agreement, then it is both tax deductible and taxable.
There are special rules regarding alimony, so make sure you take these into account. If alimony is only paid for the first year or two after the divorce, then it is considered to be a property settlement and is not tax deductible. If alimony will be paid until a child’s 18th or 21st birthday, then it may be considered, by tax officials, as disguised child support.
Tax exemption for children can only be claimed by one of you. If one parent has custody, then they claim the exemption. If custody is joint, then it is determined by who has the children for the greater amount of time during the entire year. Make sure you fill in all of the relevant paperwork and file this with your tax return.
If there are arguments about claiming the children as exemptions, find out who is actually entitled to do this. If it is you, file your tax return early. This way, if your ex is also trying to claim for this, he or she will have to prove their entitlement.
Child care credit is also available to the parent who is considered to have custody of any children. If you have custody, then make sure you are claiming this credit.