How will obtaining a divorce this year affect your taxes? With just a little tax knowledge, most divorce-related tax problems are easy to avoid.
Of course, each individual’s tax situation will be unique. What about those who pay or receive child support or alimony? How do those payments affect your taxes? Which parent may claim a child as a dependent? Can a divorce lawyer help?
The income tax reforms approved by Congress in 2017 have affected everyone. How those reforms apply to divorced and separated spouses is explained below.
Of course, every divorce – and every couple divorcing – is different, so if you are anticipating or considering a divorce in Indiana, you will need sound, personalized legal guidance from an experienced Lake County divorce attorney, and you’ll need that guidance as quickly as possible.
EXACTLY WHAT IS THE NEW TAX RULE REGARDING ALIMONY?
One key part of the 2017 tax reforms is the elimination of deductions for alimony payments. Some believe that eliminating this deduction will make divorce settlements more difficult to negotiate, because spouses who make alimony payments will now be paying more to the IRS.
For divorces that are filed on or subsequent to January 1, 2019, the spouse paying alimony cannot deduct it, and the spouse receiving it is no longer required to pay taxes on alimony.
The new rule is precisely the reverse of the old rule, which allowed spouses paying alimony to deduct it and required spouses receiving alimony to pay taxes on it. For those paying alimony, the deduction made payments easier to afford, but that deduction is no longer available.
Eliminating the alimony deduction may mean that spouses receiving alimony in the future – generally speaking, and in most cases – will receive less. Alimony payers will have to pay less because they have less after paying more to the IRS.
DOES THE IRS DISTINGUISH ALIMONY FROM CHILD SUPPORT?
The Census Bureau tells us that over four million divorced parents received payments for child support in 2016. The 2017 tax reforms made no changes in the way that the Internal Revenue Service treats payments for child support.
There is no tax deduction for child support for the parent who pays, and for the parent receiving child support payments, the payments are not considered taxable income by the IRS.
AFTER A DIVORCE, WHAT IS YOUR FILING STATUS?
A divorced person’s filing status depends on that person’s marital status on the last day of a tax year.
If the divorce was finalized in the previous tax year – even on December 31st – you’ll file as if you were divorced for the entire year, and your status should be “single” or “head of household.” To file as a “head of household,” you must meet these requirements.
- You can claim your child as a dependent.
- You were divorced when the tax year concluded.
- You paid half or more of the household expenses in the tax year.
- A “qualifying person” resided with you in the household for over half the year.
You can’t qualify as a head of household without a dependent, and the Earned Income Credit is worth more if you have at least one dependent.
WHICH PARENT MAY CLAIM CHILDREN AS DEPENDENTS?
If you are a divorced parent or if you are legally separated, claiming a child as your dependent means that you are responsible for at least fifty percent of the financial support for that child during the tax year.
The basic rule for claiming your child as a dependent requires that the child is under 19 years old, or under 24 years old if the child is a student, or any age if the child is permanently disabled.
After a divorce, however, and even during a legal separation, only one parent may claim a child as a dependent. The IRS sometimes cross-references returns to make sure that a divorced parent is qualified to claim a child as a dependent.
The right to claim your child as your dependent may be transferred to the other parent if both parents agree, both parents sign IRS Form 8332, and the noncustodial parent attaches that form to his or her tax return.
WHAT IF PARENTS PROVIDE A CHILD WITH “EQUAL” SUPPORT?
When the parents support a child “equally,” their tax circumstances get complicated. Parents should refer to IRS Publication 504 – and if that doesn’t help, consult your divorce lawyer.
If the IRS wants to ask you questions about alimony, child support, or your right to claim your child as a dependent, have a skilled divorce lawyer provide the help you need.
IN WHAT OTHER WAYS WILL DIVORCE LAW FIRMS HELP?
An accomplished Lake County divorce attorney can address your concerns regarding alimony, child support, and other divorce-related tax questions.
When a divorce procedure begins, each partner must have the advice and guidance of a trustworthy attorney who is well-versed in the tax concerns that the partners will face during a divorce. Most divorce lawyers routinely deal with these concerns and have the answers you need.
When it’s necessary, a divorce lawyer can also consult with or direct you to tax specialists, financial advisors and counselors, and additional resources.
Taxes, of course, are only one of your many financial concerns during a divorce. If getting divorced will substantially change your income and finances, you must plan thoughtfully and carefully, and you must have a good attorney’s advice from the beginning of the divorce process.
WHEN SHOULD YOU FIRST MEET WITH A DIVORCE LAWYER?
Divorce is difficult, stressful, exhausting, and for many people, painful emotionally. Taxes and divorce combined can present almost anyone with serious challenges. If you don’t pay attention to the details, you might pay substantial penalties to the Internal Revenue Service.
Don’t make things worse by overlooking the tax issues arising from your divorce. Instead, consult a divorce attorney who can help you understand your financial and tax situation. Get that help as early as possible.
You’ll also need the help of an experienced Lake County divorce attorney if you expect a dispute over marital assets, alimony, child custody, or child support.
Your future will depend on how your divorce is managed and settled, so you must be represented by an attorney who will fight aggressively for your best long-term financial interests. That’s your right.