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Filing Taxes During Divorce

filing taxes during divorce

Divorce is a complex and emotionally challenging process that can have far-reaching implications on various aspects of your life, including your finances. One crucial aspect that requires careful attention is tax filing. Filing taxes during divorce can be a daunting task, but with proper planning and understanding, you can navigate this process smoothly and ensure you meet your tax obligations accurately. In this article, we will guide you through the key steps to take when filing taxes during a divorce. 

Determine Your Filing Status 

The first step in filing taxes during a divorce is determining your correct filing status. Your marital status as of December 31st of the tax year will determine whether you file as single, married filing jointly, or married filing separately. If your divorce is finalized by December 31st, you will typically file as a single individual or as head of household. If your divorce is not yet finalized by that date, you may still have the option to file jointly with your spouse. However, it’s essential to consult with a tax professional to understand the most advantageous filing status for your situation.  

Consider Selling Assets Before the Divorce is Official 

Filing jointly with your spouse has many more tax benefits than filing separately. One of these benefits is excluding up to $500,000 in capital gains on the sale of your primary residence. If you’re single, this amount reduces down to $250,000. How does this work exactly? Here’s an example. 

Let’s say you and your spouse purchased a home 10 years ago for $300,000. In 2023, you two are filing for divorce and are selling your house, which is now worth $800,000. If you file jointly, that $500,000 gain is tax-free. If you file separately, only $250,000 of the gain is not taxable, making the remaining $250,000 taxable. Keep in mind that this exemption applies to primary residences that you’ve lived in for at least two of the last five years. Certain transfers of other property may trigger capital gains tax, while others may not. Consulting a tax professional can help you navigate the complexities of property division without unexpected tax consequences. 

Decide on Who Claims the Kids 

If you file jointly with your soon-to-be ex-spouse, figuring out who claims the kids on your tax return will be easy. However, if you file separately, you’ll want to discuss who should claim your child(ren). The benefits of this include: 

  • The dependent exemption 
  • The child tax credit 
  • The child and dependent care tax credit 
  • The earned income tax credit 
  • The adoption credit 

Whichever of you claims your child will reap the tax benefits, so consider filing together for an even split.  

Be Prepared for Tax Implications of Alimony and Child Support 

In your divorce, the court may order you or your spouse to pay alimony. Alimony is financial support for a spouse during separation or after divorce. In addition, the court may also order one of you to pay the other child support. The IRS allows alimony payments to be deducted from taxes if your divorce was finalized by December 31, 2018. On the other hand, these alimony recipients need to report that money as income and pay taxes on it. If your divorce was finalized after December 31, 2018, then you cannot deduct alimony payments from your taxes. However, alimony recipients still must report the payments received as income. Child support payments are not tax-deductible, and payments received do not need to be reported as income. 

Tax Help for Those Going Through Divorce 

Filing taxes during a divorce requires careful attention to detail and a clear understanding of your financial situation. By determining your filing status, gathering the necessary documents, addressing alimony and child support, considering property division implications, determining dependency exemptions, and exploring tax credits and deductions, you can navigate this process successfully. Remember that seeking professional advice is invaluable to ensure you meet your tax obligations accurately and make the most informed decisions for your financial future. Optima Tax Relief is the nation’s leading tax resolution firm. 

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