When you're filing taxes after or during your divorce, you may have some questions in mind. Here are some tax tips from the IRS for couples who are going through a divorce:
Filing status. Your marital status on Dec. 31 determines your filing status. If you are considered legally divorced on Dec. 31, you can file as single or head of household. However, if you're in the process of divorce, you may want to file a joint return instead of filing as married filing separately. You'll both get lower taxes if you file jointly. It's one thing that's a win-win for both parties, and an opportunity to cooperate.
Alimony. If your divorce was finalized before 2019, you can deduct alimony payments you make to your ex-spouse. The receiver must pay tax on the income.
Children. If you are filing separately, both of you cannot claim your children as dependents in any given year. If you are the custodial parent (having custody of the children most of the time) it is generally your right to claim them as dependents. However, this is another area that couples may choose to cooperate on, especially if the non-custodial parent is diligently making child support payments.
Health insurance expenses. Even if you're not the custodial parent, you can deduct your child's medical expenses if you pay for them (they're on your employer-paid policy, for example).
Tax credits related to the children. You can only claim them if you are the custodial parent.
Other tax refunds. If you and your spouse are expecting a refund, make sure to include it on your financial statement so it can be divided equally.
Sale of your home. If you're selling your home when you split up, you must consider the capital gains tax implications. Currently the tax laws allow for no capital gains tax on the first $250,000 of profit on the sale of your home if you have lived there at least two years out of the last five. Married couples filing jointly can exclude $500,000. However, after the divorce is final, each spouse can exclude $250,000 from capital gains tax.
The first step in that is finding a financial advisor you can trust who will help you create a road map for your solo financial future. At Harbor West, we specialize in helping people going through divorces wrangle their financial issues, so that you can concentrate on getting through this emotional time without worrying about money.
This information is provided for general purposes and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the information, please consult your Financial Advisor for individual financial advice based on your personal circumstances.