When you get divorced, one of the absolute last things you want to think about is your taxes. Nevertheless, you know that you are legally required to file a tax return, and many people rely on a tax refund as additional financial cushion each year. Unfortunately, many Americans have been shocked this year by far lower tax refunds than they are accustomed to. This is due to significant changes in tax laws that have taken effect for 2018 tax returns and moving forward. If you have recently divorced or are going to finalize your divorce this year, there are big changes that you should be aware of for preparing your post-divorce tax return.
Alimony Tax Implications Have Changed
In the past, one of the more palatable features of paying alimony was that it was tax deductible for the person paying the spousal support. This meant that there was a financial benefit that came with agreeing to pay alimony. On the other side of that, the person receiving the spousal support reported it as taxable income.
The new tax laws eliminate this benefit, which means that if you are paying spousal support, you will no longer be able to claim a tax deduction, or if you receive spousal support, you will no longer report it as taxable income. The key question here is when your separation agreement or alimony order was finalized. If it was signed by December 31, 2018, then the old tax rules apply to you. Otherwise, any agreements or orders after that fall under the new laws.
Filing Status, Child Credit, and Standard Deduction
One of the big questions when preparing a post-divorce tax return is your filing status. While in the past, you likely filed a joint tax return with your spouse, this changes after divorce. In the eyes of the IRS, your status as married or divorced on December 31st determines your status for the entire year. So even if you were married until December 30th, you cannot file as married for that year’s tax return if you finalize your divorce on December 31st.
If you do not itemize your deductions, then know that the standard deduction has nearly doubled if your filing status is single, from $6,350 to $12,000. If you were still married on December 31st of last year, then you can still file as married and claim a standard deduction of $24,000, which is nearly double of what it was in the year prior.
When it comes to claiming a child as your dependent, the custodial parent (i.e. the parent who has the child for more overnights during the year) can claim, while the other parent cannot. Additionally, for the 2018 tax year, the child tax credit for each child has doubled from $1,000 to $2,000; however, the $4,050 exemption for dependents has been eliminated.
If you have valuable or complex assets, you should seek out a financial or tax professional for advice on how to comply with the new laws and maximize your tax advantages.
Contact New Direction Family Law
New Direction Family Law provides complete legal representation to people who need help ending their marriage or resolving a child custody matter. We know that this is a time of uncertainty in our clients’ lives and strive to provide thoughtful and effective representation. We fight for our clients and pride ourselves in communicating with our clients, so they can ultimately move forward with their lives with confidence. Our firm serves Wake, Johnston, Durham, and surrounding counties. Contact New Direction Family Law today at (919) 719-3470 to schedule an initial consultation or visit us at our website.
Christopher R. Hicks
New Direction Family Law