How Divorce Effects Taxes

It’s that time of year again – tax time, that is. Indeed, taxes are due April 17, 2018, which means that if you haven’t started filing–or at least asked for an extension–the deadline is slowly closing in. If you were recently divorced, or if you are in the middle of a divorce, you may be wondering about how the divorce will affect your taxes. The good news is that mid-divorce, you won’t have much to worry about, as long as you’re still legally married and filing taxes together, the tax process should be familiar. If you’ve recently divorced, though, the process may have had a significant effect on your taxes. Here’s a look at taxes and divorce and what you should know when filing What’s Your Filing Status? One of the first questions you’ll be asked by the Internal Revenue Service (IRS) when filing your taxes is whether you’re filing as a single person or married person, and whether or not you’re filing jointly. If you are currently married, you must put that you are either “Married, filing separately,” or “Married, filing jointly.” You cannot put “single” if you are legally married. Remember that 2018 tax filing is for last year’s (2017) taxes, which means that if you were married last year, even if you are not married now, you will still need to put your status as “Married” when filing. Indeed, your status for 2018’s taxes is determined by your legal marital status on the last day of the tax year for which the return is due. As a note, remember to file under your married name when filing your taxes for 2017 (unless you have already legally changed it), even if you’re eager to shed your spouse’s name and move forward with your life. If you file under your non-legal name, this will likely delay your return and tax refund. The first issue to consider with regards to taxes during a divorce is what filing status you will use. Your filing options are largely dependent on the timing of your divorce. If your divorce was finalized before December 31^st of the tax year for which you are filing, the IRS considers you “unmarried” for the entire year. This means you will not have the option of choosing the status “married filing jointly” or “married filing separately”. You will need to either file as “single” or “head of household”, depending on your circumstances and what you qualify for. Filing “head of household” gives you a larger standard deduction, potential access to some valuable tax credits, and usually lower tax rates. However, you are only allowed to file “head of household” if you paid for at least half of the upkeep of your home and you had a dependent living with you for at least half the year. If your divorce was not finalized until after December 31^st of the previous year and/or the divorce is still in process at the time you file your taxes, your status will either be “married filing jointly” or “married filing separately”. In general, “married filing jointly” provides better tax benefits for spouses, although this is not true in all cases. Who’s Claiming the Children? Another important thing to think about if you are divorced or filing taxes separately from your spouse is who will be claiming the children; the dependent exemption can be substantial. As a note, the IRS assumes that the custodial parent will be claiming the children, although a party can claim a child dependent if the child lives with them for more than half the year. If you have two or more children, you and your spouse can split the exemptions as you find appropriate. You may also be able to claim the child care tax credit. This tax credit is for a parent who pays for daycare, camps, or babysitters for their child who is under 13 years of age (or any age if disabled). Make sure you and your spouse or soon-to-be-ex-spouse discuss who will be claiming the dependent exemption and child care credit. Spousal Support and Child Support Payments If you are paying or receiving spousal support payments, or rather, if you were receiving or making such payments in 2017, these payments will have an effect on your taxes. Spousal support payments must be counted as income when you are filing your taxes; those who are making spousal support payments can deduct the payments when filing their taxes, but only when the party is not filing a joint return with their spouse. Child support payment, on the other hand, are neither countable as income nor deductible when filing one’s taxes. This is also true of non-cash property settlements or any other voluntary payments. Have More Questions About Taxes, the Divorce Process, or Both? If you have more questions about taxes, the divorce process, or how one will affect the other, it’s important that you work with a professional. In addition to the issues above, remember that separating from your spouse can have a big effect on your income, which can change your tax filing bracket. Accountants and tax professionals, as well as divorce lawyers, can all be called upon for information when you have questions about taxes and divorce. At Cate & Brough Law Firm, P.A., we encourage you to call our divorce and family law attorneys if you are thinking about divorce, or have recently filed for divorce and aren’t sure what steps to take next. You can reach us at 864-585-4226, or by sending us a message using the online form on our website.