Income tax tips for the newly divorced

April 04, 2013

Income tax tips for the newly divorced

Article provided by Herbert W. Laine, P.C.
Visit us at http://www.chesapeakelawoffice.com

In the immediate aftermath of a divorce, there are a lot of issues that need to be sorted out. One of the more difficult tasks arises when new divorcees prepare their first income tax return after the marriage dissolution has been finalized. In most cases, this tax return will be very different from the returns the couple filed during the course of their marriage.

Because post-divorce tax issues can be so complicated, new divorcees would be wise to consult with their divorce attorney or a tax professional if they have any questions about how to interpret their divorce agreement or how to prepare their returns. Many people can benefit from using a professional tax preparation service in the first year after divorce, even if they have traditionally done their taxes on their own in the past.

With that said, there are some tax tips that all new divorcees can benefit from, including the following:
-Filing status: Federal filing status is based on marital status on the last day of the year. So, even if you were married for 11.5 months of 2012, you'll file as single (or head of household, if you qualify), so long as your divorce was finalized by December 31. If you were still legally married at the end of the year, you will need to file taxes with your spouse, even if you were living apart.

-Claiming dependents: Generally speaking, the custodial parent is the person entitled to claim children as dependents. If custody is shared equally, the parents will have to reach an agreement on this issue ahead of time. Sometimes, the deduction can be assigned to the non-custodial parent, but this usually requires filling out special IRS forms.

-Alimony and child support: Child support payments cannot be claimed as deductions and are not taxed as income. Alimony, on the other hand, counts as taxable income for the person who receives it, and is deductible by the person who pays it. Since alimony counts as "earned income," some recipients choose to mitigate the tax implications of the additional income by using alimony payments to fund an Individual Retirement Account.

-Tax bracket changes: Recent changes to federal income tax law created a new tax rate for single people earning more than $400,000 per year. While most people will not be affected by this change, individuals with higher incomes would be wise to take some time to figure out how their divorce settlement might interplay with the new tax laws.

These are just a few of the tax concerns facing new divorcees. If you are in the process of getting divorced, be sure to talk through these tax issues with your divorce attorney. The attorney will be able to work with you to structure your divorce agreement in a way that helps you meet your tax goals.