Whatever the cause might be, divorce is difficult.
It doesn’t matter how long you were married, whether or not you had a lot of shared property, or whether or not you have children in the picture. Separating from a spouse is difficult—emotionally and financially—and it’s a messy process that can be hard on everyone involved.
What you may not be expecting is that the confusion that comes along with divorce can continue into the next year in ways you don’t even plan for.
Working with our tax relief clients for nearly two decades, we have seen it all—including many clients who are in the midst of divorce. And unfortunately, a lot of recently divorced clients are surprised at just how many impacts divorce can have on one’s taxes.
If you’re dealing with divorce now or you’ve just settled yours, we know you’re dealing with a lot—and we don’t think you should have to add taxes to that list. We’re here to help you understand the tax changes you should look out for following a divorce.
A lot of tax changes follow a divorce, especially when you have children. We’ll walk you through five of the biggest changes that typically stem from divorce.
You certainly can guess that your filing status changes after a divorce. That’s probably the one tax change just about everyone would be able to guess. However, there is quite a bit more to that than you may realize—and getting the details wrong can leave you with a tax bill.
Tax principle: Your filing status depends on your marriage status at the start of the New Year.
If your divorce isn’t finalized by December 31, you’ll still need to file as married—and a lot of taxpayers make the mistake of filing as single. And hey, this can be tempting. After all, if you’re no longer cohabitating with your spouse or you’ve perhaps finalized your divorce in the New Year but prior to filing your taxes, you may be eager to move on.
But keep in mind that you’re filing your taxes for the previous year, not this one. An accurate tax return will reflect your marriage status for the year in question.
After a divorce, you or your spouse may be required to make different types of payments, and it’s worth knowing these payments—like child support or alimony—are taxed on both sides of the equation.
If you’re making alimony payments, they are not tax deductible. (This is updated from a previous law, which stated payments were only tax deductible if your divorce was finalized by the end of the tax year. If your divorce was finalized prior to 2019, this previous law still applies!)
If you’re receiving alimony payments, they are not reported as income. (This is updated from a previous law, which stated that you needed to report your payments if your divorce was finalized by the end of the tax year. If your divorce was finalized prior to 2019, this previous law still applies!)
If you’re making child support payments, they are not tax deductible.
If you’re receiving child support payments, they are not reported as income.
Sometimes, child support and alimony payments are pooled together into “family support” payments. Generally, family support is treated similarly to alimony.
In contentious divorces, it can be tempting for both spouses to attempt to claim children as dependents, regardless of who receives custody. Instead, check your divorce decree, which typically contains the info surrounding who will claim a child as a dependent on their taxes.
In case it isn’t clear, the rule of thumb you should abide by is the custodial parent claims the children as dependents. If both parents share custody jointly, the parent who has more days in a year will claim a child or children as dependents. In the future, if the custody agreement changes, so can the person claiming dependents.
Another note on claiming dependents is to file as “Head of Household.” If you have a dependent and provide over half their support, there’s a big advantage to filing as Head of Household rather than Single: Your standard deduction will jump from $12,000 to $18,000.
Following your divorce, if you do have a child you’ll be claiming as a dependent, you may have access to tax credits you might not have had access to or needed before.
One example is the Child and Dependent Care Credit. As a single parent, you may need to pay for childcare during work, and as the custodial parent of one or more children under the age of 13, the IRS will help you out. This specific tax credit offers some relief from childcare costs—up to $1,050 for one child and $2,1000 for two or more children.
As you should with any big life change, you should adjust your withholding on your W-4 following a divorce.
We understand this is a challenging adjustment to make—it acknowledges the new normal and may feel like your private life is bleeding into your work life. However, your W-4 is still private, and updating it will offer you many more benefits than the drawbacks you imagine.
Additionally, your paychecks will start reflecting your new filing status. We’ve worked with clients facing unexpected tax bills because they haven’t adjusted their withholding following a big life change, and there’s almost no worse (or more easily preventable) surprise! Make the changes once you’ve finalized your divorce, and get it out of the way.
Divorce is challenging in countless ways, and unfortunately, will affect your financial life substantially.
But at StopIRSDebt.com, we don’t think your taxes should be an extra weight on top of everything else you’re going through. Remember those key tax changes that can follow a divorce will help you tackle your first new tax return with confidence.
A new chapter brings new challenges, new experiences, and a new outlook in general—but we know that can be a good thing.
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