California couples who have made the decision to divorce are faced with a range of uncertainties surrounding their lives following the split. How will their budget need to change? Will their relationship with their children shift? What will life as a single person feel like after being married? One change that can be planned for is the manner in which divorce will affect one’s tax standing.
Taxes are influenced by the circumstances of the individual or couple who is filing. The most important change involves one’s filing status following a divorce. In the eyes of the Internal Revenue Service, a filer is married or single based upon his or her status on the last day of the tax year. That holds true even if the divorce was initiated prior to that date. For some taxpayers, being able to file as “married, filing jointly” will provide tax advantages, at least for one last year.
Another consideration involves allowable deductions. Child support is not an allowable expense in terms of deductions. However, it may be possible to deduct the cost of certain expenses related to child care, which may include school tuition and certain types of medical expenses.
As for alimony, this is an area in which careful tax planning is very important. The spouse who will be responsible for paying alimony will be able to deduct the cost of those payments from his or her taxable income. The spouse who receives the payment, however, can be taxed on the amount received.
As these examples show, taking the time to determine how a divorce will affect your future tax burden is a wise move. Decisions can be made within the divorce process that can minimize the tax impact for both spouses, leaving each party better able to move forward with a greater degree of financial stability. While filing taxes is usually not considered a fun activity, it is much better to move through divorce with a clear idea of the tax implications than to be caught unaware for next year’s filing.
Source: The Huffington Post, “Divorce Tax Tips: Five Most Common Tax Questions,” Joseph E. Cordell, Jan. 29, 2013