Tax season is upon us. And for those individuals who are filing taxes in the middle of divorce proceedings or in the wake of a recent divorce, this season can be particularly frustrating. Thankfully, most divorce tax issues can be approached without too many complications if you keep several factors in mind.
First, an individual's or couple's filing status is determined by whatever your marital status is on December 31 of the year for which taxes are being filed. This means that if your divorce was finalized by December 31, 2012, you may file as a single individual. If your divorce was not finalized by this date, you need to file as married filing jointly or married filing separately.
Your particular income and asset equation will determine which status will benefit you and your spouse most if you are still filing as a married couple. Most married couples choose to file jointly. However, it is worth discussing the potential benefits of filing separately with your attorney and financial planner. Filing one way or the other may affect your divorce settlement, asset protection and liability in the event of an IRS audit.
If you have been receiving or paying spousal support and/or child support as a result of divorce settlement terms or legal separation terms, you will need to reconcile any income that may be taxed or deductible. The simple answer is that child support is not generally taken into consideration during tax season. Though some child-related expenses may be considered deductions, child support is generally neither tax-deductible nor considered taxable income.
On the other hand, spousal support is generally considered taxable income by the individual who receives it. In addition, many scenarios allow an individual paying spousal support to deduct payments from their tax liability. However, this scenario is nuanced and should be discussed with your attorney and financial planner.
Tax season can be frustrating when you have recently finalized a divorce or remain entangled in the divorce process. However, a few straightforward tips and some expert advice will help you to survive the season with your sanity intact.
Source: Huffington Post, "Divorce Tax Tips: Five Most Common Tax Questions," Joseph E. Cordell, Jan. 29, 2013