The most contentious part of the divorce often involves property division. In addition to taking into account who gets the home and other valuables, it is also important to take into account the impact of taxes. For example, the shift from filing as “married filing jointly” to filing as “single” or “head of household.” The following will provide additional information on how this and other common tax issues can impact those who are going through a divorce.
#1: Filing status
When a couple divorces, their tax filing status changes, which can significantly impact their tax liability. The “married filing jointly” status often provides tax benefits, such as lower tax rates and higher income thresholds for certain deductions. Once divorced, individuals must choose a new filing status, which can lead to higher taxes. Two options for filing status in this situation include single and head of household. The single status applies if you were not married on the last day of the tax year. It generally results in higher tax rates compared to “married filing jointly.” The head of household status may be available if you have a dependent and meet certain criteria. This option can offer more favorable tax rates than filing as single.
#2: Alimony and child support
Alimony, or spousal support, and child support are common financial arrangements post-divorce, each with distinct tax implications. Understanding these can help avoid unexpected tax liabilities and mitigate the risk of any surprises after you finalize the divorce. For divorces finalized in 2018 or earlier, alimony payments are deductible for the payer and taxable for the recipient. For divorces finalized after this date, alimony is neither deductible nor taxable. Child support payments are not deductible by the payer or taxable to the recipient, regardless of the final date of the divorce.
#3: Tax credits and deductions
While reviewing tax filings, it is also wise to check for applicable tax credits and deductions. Explore eligibility for credits such as the Child Tax Credit or Earned Income Tax Credit, which can provide financial relief.
These are just a few of the more common tax issues the Internal Revenue Service (IRS) tends to see for couples who are going through divorce. By understanding and addressing these tax implications, you can better ensure financial stability after you finalize your divorce.
