Post-Divorce Tax Issues Clients May Need to Consider
After months of back and forth negotiations, the divorce is finalized and you and your now ex-spouse are free to move on to the next phase of your lives. But while the marriage may be over, there may be some lingering tax issues related to the divorce. In another post we discussed tax issues couples may face during the divorce. Here are some of the most common post-divorce tax issues you may face, some of which are the same or similar to those that arise mid-divorce.
Filing status. If your divorce was finalized before December 31, your options for filing the next year’s taxes are limited to single or head of household. That is because the IRS has stated that your filing status for income tax purposes is based on your marital status as of December 31. If you and your ex-spouse had children, you can file as head of household – and get a larger standard deduction - if a dependent lived with you for more than half the year and if you paid more than half the upkeep on the marital home. Your attorney, in consultation with your tax accountant, can help you determine which filing option is the most advantageous.
Dependents. Parents sometimes jokingly refer to their children as “our little tax deductions.” But it’s true that claiming a child as a dependent gets you a bigger tax refund. Following a divorce, the parent who is awarded primary custody usually claims the child as a dependent for income tax purposes.
But in some situations it makes more sense for the non-custodial parent to claim the child as a dependent, such as if he has a higher income and would benefit more from claiming the child. In cases where the parents share custody, they may agree to alternate who may claim the child as a dependent. Or, one parent may agree to forego claiming the child the in lieu of another benefit. Your attorney can help you decide how to deal with the dependent issue.
Child support. The parent who pays child support cannot claim it as a deduction on his income tax return, and the parent who receives the payment is not required to report is as income on her tax return. However, any payments made for a child’s medical expenses are an allowable deduction, regardless of who claims the child as a dependent for income tax purposes.
Alimony. The spouse who pays alimony may deduct the payments on her income tax return. The spouse who receives alimony must report it as income on his tax return. It is very important that you are clear on which payments are alimony and which are not, and report them accordingly. The IRS has recently begun cracking down on alimony income and deduction reporting due to wild discrepancies in the amount of alimony claimed as a deduction and reported as income.
Division of Property. There may be tax implications that arise from the property division, such as how to allocate capital gains or losses associated with an asset, or what the basis of a particular asset will be. It is important that you obtain competent advice on these issues to ensure you don’t run afoul of the IRS when it comes time to report these gains/losses or when you sell the property down the road.
Boca Raton Divorce Attorneys Can Advise You on Income Tax Issues
Divorce has both short-term and long-term tax implications, many of which you may not even consider until the IRS comes knocking. The Boca Raton divorce attorneys at Schwartz | White understand the many tax issues that couples face both during and after the divorce. We can help you navigate the post-divorce tax terrain, and advise you regarding what payments can reported as income and deductions and how property division will affect your future finances. Call our Boca Raton office today to schedule an appointment with one of our attorneys to discuss your divorce.