Divorce proceedings can be overwhelming and stressful, thinking about taxes while going through a divorce is probably the last thing on your mind. However, you need to have a clear understanding about how taxes will affect you before you settle your divorce.
Divorce attorney in Riverside CA offers 3 important, tax-saving tips that you need to consider when getting divorced.
- Filing Status.
Your legal marital status on December 31st determines your filing status.
If your divorce is still not finalized at the end of the year, you have two options, you can file a joint tax return or you can file the married-filing-separately status.
If your divorce has been finalized and you have primary custody of your children, you can pay less tax by filing as head-of-household.
If you don’t have children and your divorce was finalized on or before December 31st, your tax status will be single, even though you were married part of the year.
- The Tax Implications of Support.
Alimony – The person paying alimony – oftentimes called spousal support – can fully deduct the alimony payments without having to itemize deductions. In order for alimony to be considered tax deductible for income tax purposes, there must be a legal separation agreement or divorce decree.
The person receiving the alimony will have to pay taxes on the money received as earned income. If you are receiving alimony, it is important that you report the full amount of alimony received on your tax returns since the IRS will know how much alimony you received.
Remember, if you are receiving alimony, you are getting paid pre-tax money, and you have to pay taxes on the alimony. It is important to have a Birmingham Divorce Attorney represent you so that you receive a divorce settlement that supports your needs and will also include enough money to pay your taxes.
If you’re employed you can have extra taxes withheld from your paychecks to cover your taxes for alimony.
If you’re not employed, or the amount withheld from your paychecks won’t be enough to cover your taxes, you can pay estimated tax payments on a quarterly basis so you won’t owe taxes and penalties.
Child Support – Child support is not taxable income by the parent receiving child support. Child support is taxable income to the parent who pays the child support.
Birmingham Divorce Attorneys will usually recommend that the spouse paying child support purchase a life insurance policy covering the terms of the child support payments, naming the custodial spouse as the owner and beneficiary of the policy.
- Exemptions and Medical Expenses for Children.
If your divorce decree states that you are the custodial parent, you can claim your child or children as dependents on your tax return. If your divorce decree does not specify the custodial parent you are still eligible for the exemption under the following circumstances – your child or children live with you more than they live with your ex-spouse. If your child or children live with you less than six months out of the year, you can still claim them as dependents if you have your ex-spouse sign IRS Form 8332.
The custodial parent is also entitled to claim a credit for the expense of work related child care for children under the age of 13. The child care credit is only available to the custodial parent even though the custodial parent may have filled out IRS Form 8332.
If you pay your child’s health insurance premiums and your child’s medical and dental bills, you can include these expenses in the medical expense deductions on your tax return even if you don’t have primary custody of the child and cannot claim the child as a dependent on your tax return.
Once your child reaches college age, you have the right to claim the Lifetime Learning College Credit or the American Opportunity Higher Education Credit if you have been claiming the child as a dependent on your tax returns. You cannot claim those credits if you can’t claim the child as an exemption, even if you are paying your child’s college expenses.
Knowing the basics of how a divorce can affect your taxes can help you avoid costly mistakes when reaching a divorce settlement. You should always consult a reputable Birmingham Divorce Attorney before settling your divorce.
