Divorce is complicated. Beyond the emotional toll and uncertainty that comes with it, there is the minefield of separating a couple’s property. Your finances and property have been intertwined for years. In addition, there are the issues of child support and alimony that have to be settled. Ultimately, when the all issues have been resolved and there is a divorce decree, there is one more matter to resolve: how your divorce impacts your tax return.
Tax Status — Your tax status is based on your marital status at the tax-filing deadline. So if you are not yet legally divorced yet, you will still need to file a joint return as a married couple. If you are legally divorced, you should file as single or head of household.
Child as a Dependent — Generally, the parent who has custody of the child for the greater number of days per year claims the child as a dependent. This reduces the tax obligation of that parent. Sometimes parents will agree as part of their separation or divorce that the non-custodial parent may claim the child as a dependent. However, this consent from the custodial must be in writing and submitted to the IRS using Form 8332.
Transfer of Property — Fortunately, the IRS does not recognize gains or losses associate with transfers of property that are the result of a divorce. Otherwise, this would add an incredible cost to getting divorced.
Alimony — Alimony constitutes taxable income for the recipient and should be accounted for through estimated taxes, since the federal government does not withhold any portion of alimony payments. The person paying alimony may qualify for a tax deduction for their payments.
Child Support — Child support is not considered taxable income by the parent receiving the support. Likewise, child support payments are not tax deductible by the paying parent.
IRA Contributions — You may continue to deduct any contributions you have made to your own traditional investment retirement account (IRA). However, you may not deduct contributions you have made to your spouse’s IRA.
Costs of Divorce — Divorces can be expensive. Unfortunately, the costs and fees associated with getting a divorce are not tax deductible.
Let New Direction Family Law Assist You
With two decades of combined legal experience, the attorneys at New Direction Family law have provided intelligent, thoughtful legal advice to people in need of help. Separations and divorces are incredibly stressful and emotionally consuming experiences, but we take pride in remaining focused on your objectives. Let us guide you where you want to go. We practice in Wake, Johnston, Lee, Harnett, Cumberland, Nash, Granville, Franklin, and Durham counties. Call our office today at (919) 719-3470 to schedule a consultation, or visit us online at our website.