If you are involved in marital dissolution proceedings or you may be later this year, taxes may be the last thing on your mind. After all, April 15 passed a few months ago. But you can be best prepared for tax consequences when you know what to expect. This article will help you do that, giving the five top tax tips for when you’re going through a divorce.
- Marital and Filing Status
The Internal Revenue Service determines your marital status on December 31. It does not matter whether your divorce was final in March, July, or December. All that matters is whether (or not) you were married on December 31. If you were, the IRS considers you married for that tax year; if you were not, the IRS considers you single for that tax year.
Most people know that tax rates are lower for married couples who file their federal taxes jointly. If you are still married on December 31 and you cannot bear the thought of filing jointly, another option is to file as married filing separately. From a tax standpoint, this is less advantageous because the tax rates are higher. You may wish to run the numbers both ways before making a final decision about this.
Of course, if you are divorced on or before December 31, you must file as a single person. You may be able to get lower rates by filing as a head of household if you qualify for it. This typically requires that your child lived with you for more than half the year and that you paid for more than half of the costs of your home. You can read more about filing status in this IRS publication.
- Spousal and Child Support
Spousal support and child support are treated differently by the IRS. Spousal support has tax consequences for both spouses. The paying spouse can deduct it. The person receiving the money must pay tax on it because it is considered income. Child support, on the other hand, is neither taxable nor deductible. Because of this critical distinction, it is important to make sure that any money paid is clearly defined as either spousal support or child support.
- Exemptions and Tax Credits
It is also best to ensure that your order or decree states who can claim the dependency exemption for your child. If the order does not specify this, the parent with whom the child lives the longest has the right to claim the child as a dependent on federal taxes.
Additionally, the parent who has the right to claim the dependent as an exemption also has the exclusive right to claim the federal child credit and higher education credit.
- Property Transfers
The IRS does not apply capital gains and loss taxes to property transfers that result from a divorce. There are, however, time limitations to this favorable treatment. If the transfer is pursuant to a divorce decree, it can be transferred within six years. If the property is not provided for in the decree, it can still be transferred, but a shorter, one-year limit applies.
- Child Medical and Dental Expenses
It may surprise you to learn that a divorced parent who does not claim an exemption for a child may still be able to deduct that child’s medical or dental expenses. To take advantage of this, the parent must have paid the expenses for the child. You can read more about other requirements in this IRS publication.
An experienced New Mexico family lawyer can help you understand what to expect when it’s time to prepare next year’s taxes. If you have questions, contact the Lightning Legal Group. We understand that many questions arise when you’re navigating a marital dissolution, and we’ll help you find your way. Contact us today at (505) 247-2390 for experienced legal advice.