10 Things You Need To Know About Divorce and Taxes
When you divorce you will be subject to a new set of rules when filing taxes. Understanding the rules governing tax in relation to divorce will help you make the best decision during your divorce process.
This excellent article by Rebecca Siggers outlines how divorce changes your tax obligations. The divorce process gives you enough stress, and you do not want the IRS to come for uncleared taxes at your doorstep.
The Date You Legally Divorce. Your marital status on December 31st determines your tax obligations.
Who Takes the Responsibility of Children? According to IRS regulations, only one parent can claim dependents in any given tax year.
You Might Qualify for the Head of Household Status.
Child Support is not a Deductible Expense. Child support payments are also not a source of income. As such, if you receive these payments, do not include them in your taxable income. In short, child support payments are tax neutral.
Alimony and Tax. For divorces after December 31st, 2018, spousal maintenance is not tax-deductible for the individual paying. Similarly, it is not taxable income for the recipient.
Divorce Costs are not Tax-deductible.
Property Taxes. Fortunately, you do not incur taxes on property transfer. Under the Internal Revenue Codes, property division as a result of divorce is not taxable. Unfortunately, if you decide to sell the home, you might have to pay capital gains tax.
Retirement Benefits and Plans. How you choose to go about the sharing of retirement assets might affect your taxable income.
A Divorce Could Affect Your OIC Agreement with IRS. IRS offer in compromise is an agreement between an individual and the tax regulator to reduce the tax burden. When reviewing your OIC, the IRS also looks at your current income stream, as well as your tax profile. Your income is a significant factor in your tax profile. Therefore, if you receive a massive amount in a divorce settlement, there will be a considerable change in your tax profile. And, as a result, the IRS might review your OIC.
Name Change and Filing Tax Returns. If you change your name, make sure you alert the Social Security Administration as soon as possible. When filing returns online, your records in the IRS have to match the SSA records. Otherwise, the system will reject the returns.
A divorce is a complicated process. However, you can make the aftermath of divorce less stressful by learning about all the possible changes, which include changes in your tax obligations and liabilities. After learning the essential things you should know about divorce and taxes, you can now decide with your spouse on what move to take to benefit both of you.