midst all the details you have to figure out post-divorce, you're probably wondering how you'll work out your tax situation. Your ex may have been the tax whiz and now you’re on your own. Or maybe you had a routine dialed in on TurboTax and now you're not sure where to start.
In this article, we’ll take a look at the tax implications of divorce. Specifically, we’ll discuss these questions that a lot of first-timers filing taxes after divorce have:
This article is for informational purposes only. The content of this article is not intended to be tax advice, so consult a tax professional to assist you with your return.
When you got married, one of the most obvious tax benefits was that you got to change your filing status and file a joint return. This allowed the two of you to pool your income, personal exemptions, and standard deductions. If you and your former spouse had wildly different incomes, it also likely moved one of you into a lower tax bracket, substantially lowering your overall tax bill.
Now, your marital status is changing, and you’ll have to go back to filing a separate return. The exact date of your divorce will impact your next steps. Let's say, for example, that your divorce decree is issued on December 27, 2021. In that case, the law will consider that you were divorced that year, and you will file your 2021 taxes as a single person.
This situation could cost you a lot of money if you make more than your ex-spouse. Just as you were moved into a lower tax bracket when you married, becoming single will probably bump you right back up into a higher bracket with no change in your adjusted gross income. The tax liability could cost you thousands more than you have already paid as a result of your divorce.
Now, let’s move that divorce back one week, to January 3, 2022. In this case, the week can make a huge financial difference because the law will still consider you married as of the end of 2021. That means you can still file under the “married filing separately” status.
These sorts of timing issues might not be at the front of your mind during a divorce, but it pays to think about them, especially if your divorce is coming up around the end of the year. It’s a matter worth discussing with your accountant or tax professional for some tailored tax advice.
No matter when your divorce was finalized, you also have to think about which earnings will count as income for tax purposes. Obviously, any payments that either of you get from your jobs, business, or investments count. What about alimony, though? Or child support? Let’s look at if those payments count toward your income.
The taxable status of alimony is a tricky subject that has been the subject of recent legislation known as the Tax Cuts and Jobs Act. The short answer is that, if you just divorced or did so since 2019, you do not have to claim alimony as income. (Former spouses who pay alimony in these situations likewise cannot deduct it from their income.)
If, however, your divorce was finalized before 2019 or you’re getting payments based on a separation or divorce agreement dated before 2019, alimony payments are considered income for the ex-spouse who receives them. In this situation, if you are getting large payments, they can increase your tax rate.
These kinds of payments can also be deducted on the paying person’s income tax return. The status of these payments is subject to federal statutes and court decisions, so if you have further questions on these points, it would be a good idea to go over them with a tax attorney.
Child support is somewhat simpler than alimony. The law takes the position that you are obliged to care for your children. So, if you are the child support payer, you generally cannot deduct the payments from your taxable income on your 1040 returns. By the same logic, child support payments received from an ex-spouse are not considered income, either.
One of the biggest federal tax issues that comes with divorce is the tax breaks. Which parent gets to be the “head of household” that claims the kids as dependents? (Note that you cannot both claim the kids on your returns without getting into real trouble with the IRS.)
The general rule of thumb is that the custodial parent (defined here as the parent that has the child at least 51% of the time) is the one that gets the head of household status. If you are trying to evenly split the expenses of raising children, though, this may not always be the fairest solution.
Let’s say that you are the custodial parent, but you also receive substantial child support from your co-parent every month. Remember that your ex can’t deduct that child support from their income. Letting them claim the kids for tax purposes can be a way to give the noncustodial parent some tax benefit they couldn’t get otherwise.
Child support isn’t the only way you or a co-parent can split expenses for your child. One of you may pay for your kids’ health insurance or other medical bills. Or one of you might pay all of your kid’s tuition at a private school, pay for expensive extracurricular activities, or give financial support in any number of ways.
With all of these possible expenses floating around, it will help everybody if you have an easy way to keep track of who owes what. The best way to do this is with an expense tracking app like Onward.
After both parents download the Onward App to their phones, they can easily categorize, track, and submit backup documents (like receipts) for various expenses, then see when the expense has been paid back. When tax time rolls around, both of you can look at your records and determine the best way to handle taxes and tax deductions for your family.
Filing taxes after divorce can be just as complicated as you expect. The good news is that tax laws give you and your co-parent a lot of freedom to come up with an equitable solution between yourselves. It pays to take some time to make a plan before tax filing season comes, so you and your ex can be organized and work together.
The best solutions are the ones that give you results while making communication easier. The Onward App gives you a powerful tool to handle shared expenses in a way that allows easy tracking and accountability. Download it today on iOS or Android.
Matthew Carter has been a licensed attorney since 2004. He has successfully handled a variety of trials, appeals, and evidentiary hearings throughout state and federal courts. Matthew has done pro bono work in the Las Vegas community representing foster children and helping reunite families separated in the Las Vegas family court system.