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Divorce can be a difficult process that impacts many areas of your life, including taxes. With tax season just around the corner, it’s essential to understand how separating from your spouse can affect your filing status and eligibility for various deductions and credits. Let’s take a look at how divorce impacts the tax process.
The Ways Divorce Impacts Taxes
There are three main ways in which divorce can impact how you file for taxes. Eiges & Orgel, PLLC explains them thoroughly below:
1- Filing Status
Your filing status is determined by your marital status on December 31st of the year you are filing for. So if you were married by December 31st, then you must file as married either jointly or separately. However, if you were divorced by December 31st, you may file as single or head of household if certain conditions are met. This means that the date you finalized your divorce is critical in terms of tax filing.
Keep reading to learn more about the specific conditions you must meet for filing statuses.
2- Head of Household vs. Single Filing Status
The head of household filing status provides several advantages over single filing statuses, such as lower tax rates, higher standard deductions, and more tax credits than single filers qualify for. To be eligible to file as head of household, one must meet all three requirements listed below:
You paid more than half the cost of maintaining a home for a qualifying person/child;
You lived apart from your spouse during the last six months of the year;
The qualifying person/child is either a US citizen or resident alien related to you (or both spouses).
If all three criteria are met, you may file as head of household instead of single when submitting taxes under this filing status. You must also complete IRS Form 8582 to claim any losses due to depreciation or casualty events related to an asset used in a business or rental activity.
3- Child Dependency Exemptions & Alimony Payments
When claiming children on taxes after divorce, only one parent can claim them as dependents each year since two parents cannot agree to alternate years claiming children on their respective returns.
This decision will typically be decided in the divorce decree, but if not explicitly stated, then whoever provides more than 50% support is eligible to claim the dependency exemption and any associated child-related credits such as Child Tax Credit and Additional Child Tax Credit––this includes childcare expenses paid out-of-pocket during the year too.
Additionally, alimony payments made can be deducted from taxable income. In contrast, alimony received must be included in taxable income, meaning that those receiving alimony will pay taxes on those funds while those making alimony payments get taxed less because they can deduct it from their taxable income.
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Working With Professionals That Understand in NYC
Knowing how divorce impacts taxes can save filers money come tax season, so understanding what changes need to be made before preparing your return is essential. Your divorce will likely impact your filing status and exemptions. However, remember that individual circumstances vary, so consulting with an accountant familiar with divorce situations is recommended.
Additionally, if you are filing for divorce and are curious about the impact on your taxes and financial situation, an experienced family law attorney can provide additional insight. The team at Eiges & Orgel, PLLC is here to help in New York City. We can walk you through your divorce and provide explanations as to how it may impact your tax filing. You can contact our team for a consultation today.