Tax season isn’t necessarily a time of year or a pending task that prompts enthusiasm—add in a divorce, and the tax implications that can accompany your changing marital status, and it may feel overwhelming to get started. If you went through a family law matter in 2018, below are a few tax implications to be aware of before filing:
How Should You File? You may be wondering if you should file your taxes jointly or separately. Generally, couples receive a larger refund when they file jointly. In this case, many couples opt to file jointly one last time to receive the best refund possible, so long as their divorce is still ongoing. An exception to this is if you feel your ex would be dishonest on your tax return. If this is the case, you may be better off filing separately so that you can avoid any negative consequences or liabilities that could emanate.
Whatever you’re learning towards, be aware that the date that your divorce is actually finalized will also play a role in your filing status. If you were still legally married on the last day of the taxable year, December 31st, you can file under a married status for this tax season. If your divorce was finalized by or before this date, however, you have to file separately.
How Is Child and Spousal Support Taxed? The first thing to note about support payments is that spousal and child support are not handled the same when it comes to taxes. Generally speaking, child support is not a taxable income, nor is it deductible. Spousal support, on the other hand, is viewed differently. In the past, spousal support has been considered a taxable income for the receiver, and a deductible for the paying spouse.
As of January 1st, 2019, however, the Tax Cuts and Jobs Act switched the tax burden. This new tax reform now relinquishes the receiving spouse from paying taxes on the alimony, and eliminated the deductible from the paying spouse. What does this mean for you? It means that if your divorce was finalized before December 31st, 2018, your spousal support payments will be taxed pre-tax reform. Be mindful, however, that any divorces finalized in 2019 will be subject to the new tax law.
Who Gets to Claim the Kids? If you and your ex-spouse have decided to file separately this tax season, the question will arise of who gets to claim the children for a dependency exemption. Many couples will review this subject in their divorce proceedings before the divorce is finalized, and come to a negotiation or agreement of sorts that makes sense and feels fair for both parties. If this wasn’t decided in the Final Judgment, then legally speaking the parent who acts as the primary caregiver of the children will be eligible for the exemption.
While spousal support and dependency exemptions are common tax questions, the list goes on depending on each couple’s unique situation. If you’re planning on filing your taxes within the next couple of weeks, make sure you’ve read up on all tax implications that can be applied.