Introduction
If you’re going through a divorce, one of the things you need to consider when negotiating your settlement is how your taxes will be affected. After a divorce, your filing status will change and you may also be faced with new sources of income or new expenses. Below are answers to the frequently asked questions on how these changes affect your taxes.
Frequently Asked Questions
What is my filing status if our divorce hasn’t been finalized?
If your divorce has not been finalized by the end of the tax year, usually December 31st, you may choose to file as either married filing jointly or married filing singly. If the divorce is amicable enough to file a joint return, you should choose the option that makes the most financial sense. If the divorce is hotly contested or you don’t trust your spouse’s tax filings, you should file separately. If both spouses don’t agree to file jointly, you must file separately.
What is my filing status for the year in which the divorce was finalized?
If a divorce is finalized before the end of the tax year, you cannot file as married for that year. You would file as either single or as head of household. To qualify as head of household, you must have children or other dependents living with you, and you and your spouse must have lived apart for at least the last six months of the tax year.
Who can file as head of household in the years following the divorce?
To qualify for head of household, you must have children who lived with you for more than half of the year, and you must have paid more than half the cost of keeping up your home. Who claims the exemptions for each child has no effect on head of household status.
Who can claim the dependent exemption for a child?
Each child can only be claimed as a dependent on one tax return. By default, the parent with primary custody is entitled to claim the exemption. The parents can agree to other arrangements including allowing the non-custodial parent to receive the exemption, alternating the years in which they take the exemption, or, when they have two children, each taking one exemption. Often, the parents will agree to alternative arrangements when only one parent would actually benefit from claiming the exemption or for other considerations in the marital settlement.
In order to enter into alternative arrangements, the parents must file Form 8332 with the IRS. If both parents claim the exemption on the same child, stiff penalties and back taxes will result for the parent who was not entitled to claim the exemption.
Who can claim medical expenses paid for a child?
The parent paying a child’s medical bills is entitled to deduct those expenses regardless of who has primary custody and who claims the dependent exemption.
Is child support taxable or tax deductible?
Child support payments are considered to be sharing the parenting costs. They are not taxable income for the parent receiving the payments. The parent making the payments pays child support from their taxable income and cannot claim a deduction for the payments.
Is spousal support taxable or tax deductible?
Spousal support is considered to be taxable income for the spouse receiving the payments. They therefore must report spousal support payments received on their income tax return. Because the receiving spouse pays taxes, the paying spouse can deduct the payments on their own taxes. The spouses can agree to make the paying spouse responsible for taxes instead of the receiving spouse as part of their divorce settlement if they find it advantageous to do so.
Are divorce legal fees tax deductible?
Legal fees for a divorce are generally not tax deductible. The only exception is alimony. Because alimony is taxable income, any legal fees that can be directly be attributed to receiving an alimony award or collecting on past due payments are tax deductible.
Who can claim mortgage interest or other itemized deductions?
Mortgage interest payments on a mortgage in both spouses’ names and other deductible expenses are generally considered to be divided evenly. That is, if the spouses file separately, each spouse can claim one half of the expense in their itemized deductions. Spouses who did not divide expenses evenly should consult with their accountant or divorce attorney.