This morning a new entry explaining the tax implications of divorce was published on the Roni Deutch Tax Center – Tax Help Blog. As the article explains, our complicated tax system can often make stressful situations, such as a divorce, even more stressful. I have included a segment of the article below, but to learn more about the tax implications of divorce, check out the Roni Deutch Tax Center – Tax Help Blog.
Tax Filing Status
Even if you spent most of the year married to your partner, if you become legally divorced on or before December 31st, you will not be eligible to file a joint return. Therefore, if you are in the process of getting divorced, which will not finalize before the end of the year, you will need to file as a married taxpayer (either a joint or separate return). If you and your former spouse are on good terms, you should try to discuss tax planning as it related to your divorce. Additionally, if you are unmarried and your spouse was not a member of the household for at least six months of the year, and you have a qualifying dependent, you may be able to take advantage of the head of household filing status.
Child Custody and Tax Exemptions
If you had children with your ex-spouse then a whole new set of tax complications may emerge depending on the specifics of your child custody arrangements. If one parent is required to make child support payments, that parent will not be able to deduct the payments on a federal return. Additionally, child support payments are not considered taxable income for the parent receiving the payments. The parent has majority custody can also claim the children as dependents, and benefit from the resulting tax incentives.
A home is often the most expensive purchase a taxpayer will make in their lifetime, and can result in serious financial issues during a divorce. You and your former spouse will undoubtedly need to decide what to do with the property after the divorce is finalized. One ex-spouse may decide to continue living there, possibly with dependent children, or you may decide to sell the home and split the proceeds. If you do sell the home, and profit from the sale, then you will want to reinvest those funds within two years to avoid the capital gains tax.
Divorce and Attorney Fees
There is a small category of attorney fees may be deductible expenses on your tax return. For example, although, the legal fees for the divorce itself are not deductible, legal fees related to estate planning due to a divorce may be. To be on the safe side, you should ask your attorney to divide the bill into non-deductible charges, tax-deductible alimony charges, and property settlement charges. By doing this, we will be able to help your tax preparer have sufficient proof to claim the tax deductible fees on your return.