Most people know that going through a divorce is challenging. However, one aspect that often catches individuals off guard is the impact of their divorce on their tax situation. At Singleton Smith Law Offices, we believe in empowering our clients with knowledge.
In this blog, we will look at some tax-related issues stemming from divorce, including:
- Filing status changes
- Claiming a child as a dependent
- Claiming the Child Tax Credit
- Child support and alimony considerations
Keep reading to learn more.
Filing Status Changes
Your filing status post-divorce is one of the immediate changes that affect how you prepare your taxes. If you finalize your divorce by December 31st of the tax year, you will file as a single taxpayer for the entire year. However, before filing single, you should check your eligibility to file as a head of household, which can provide more favorable tax rates and a higher standard deduction, under certain conditions.
To qualify as head of household, you must have paid more than half of your household expenses, lived apart from your spouse during the last six months of the tax year, and if you have a dependent child, they must have lived with you for more than half the year.
Claiming a Child as a Dependent
Determining which parent has the right to claim a child as a dependent after a divorce centers primarily on residency and income criteria. The crucial factor is the number of nights the child spends with each parent throughout the year.
The parent hosting the child for the majority of nights—deemed the custodial parent—typically has the eligibility to claim the child as a dependent. When the child splits their time equally between both parents, the parent with the higher adjusted gross income takes precedence in claiming the child.
To enable the non-custodial parent to claim the shared child as a dependent, the custodial parent must complete and sign Form 8332, clearly declaring that they are releasing the dependency exemption.
Claiming the Child Tax Credit Post-Divorce
In the aftermath of a divorce, determining eligibility for the Child Tax Credit is paramount for maximizing tax benefits. This credit is designed to assist families by lowering their tax liability for each qualifying child. As with claiming a child as a dependent, the custodial parent takes precedence with the Child Tax Credit. Should they wish to, they can sign their right to the Child Tax Credit over to the non-custodial parent.
It is not uncommon for divorcing parents to negotiate who gets the Child Tax Credit. We encourage parents to outline their plans for this tax credit as part of their divorce and custody agreement. We also encourage our clients to consult with their own tax advisors to understand their eligibility and the implications of claiming this credit more clearly.
Do You Deduct Support Payments?
How the federal government deals with spousal support can be somewhat confusing as it depends on when your spousal support judgment was entered. If your first spousal support order was entered before January 1, 2019, alimony payments are deductible by the payer, and the person receiving the payments must enter them as income. If your order was entered on or after January 1, 2019, payments are not deductible, nor must the receiver list them as income.
California has different rules when it comes to dealing with spousal support (also called spousal maintenance) and taxes. In California, the person paying spousal support may deduct their payments on their state taxes, and the person receiving support must list the received payments as income.
What About Child Support?
Child support payments are neither deductible by the payer nor taxable to the recipient, thereby having no direct tax implications.
Seek Professional Guidance
Tax planning during and after a divorce requires careful consideration. At Singleton Smith Law Offices, we emphasize the importance of being proactive with your tax planning during divorce proceedings to avoid surprises when tax season arrives. You are strongly encouraged to seek guidance from certified tax professionals who can help you understand your new tax circumstances.
For personalized advice and assistance on legal matters surrounding your divorce, please don't hesitate to contact Singleton Smith Law Offices. Our team is committed to supporting your journey towards a new beginning.