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Navigating Taxes After Divorce

Navigating Taxes After Divorce

Although exceedingly common, divorce is almost always a miserable experience. Not only is it emotionally exhausting, but the process also demands hiring an experienced attorney and stacks of tedious paperwork. Figuring out taxes during and after this life event is yet another complication divorcees must sort through. Fortunately for you, we can help if you’re finding yourself struggling with this new experience. Read on for help on navigating taxes after divorce. Don’t worry—there is a light at the end of the tunnel!

Decide Whether to File Jointly or Separately

This isn’t a consideration for everyone but, if you are not yet officially divorced and instead only separated, you’ll need to decide how to file your tax return: Jointly or Separately. As counterintuitive as it may seem, joint returns do offer a number of benefits, and is worthy of your consideration if your relationship is still amicable. Once your divorce is finalized, this option will be off the table. If you will be divorced by year’s end, filing as Head of Household is likely the way to go. As this reference article notes, “If you can’t file a joint return for the year because you’re divorced by year-end, you can file as head of household (and get the benefit of a bigger standard deduction and gentler tax brackets), if you had a dependent living with you for more than half the year, and you paid for more than half of the upkeep of your home.” Note: if your ex wronged you in the past by lying on your joint tax return and landing your family in debt with the IRS, remember to seek injured spouse relief help.

Take Advantage of Associated Tax Deductions

If you are the spouse who is making support payments to your ex-spouse, take heart—you can take a tax deduction for these payments and don’t even need to itemize your deductions. Your ex-spouse, on the other hand, will have to pay taxes on these payments. Keep in mind that this isn’t the case for child support; the person making the child support payment doesn’t get a deduction and the recipient also doesn’t pay income tax. However, you might be able to get a tax break if you’re the one responsible for a dependent’s medical bills post-divorce. Simply include them alongside your own medical expense deductions on your return. Note: this is true even if your ex-spouse has physical custody over the child and claims the dependency exemption.

Assess the Capital-Gains Tax Implications

Divorces frequently entail the sale of the family home, for which sale you’ll need to pay taxes on. As the previous article mentions, “Normally, the law allows you to avoid tax on the first $250,000 of gains on the sale of your primary home if you have owned the home and lived there at least two years out of the last five.” Those filing jointly, however, can exclude up to $500,000 if either one of you considered it your primary residence for at least two of the last five years.

Another way to approach the capital-gains tax burden is to shift the property from both spousal owners to only one name; the recipient is the only person responsible for the tax bill once the transaction is finalized. Note: the sold property is subject to capital-gain tax on the appreciation both before and after the ownership transfer.

Claim Child Tax Credits (If Applicable)

Any parent who claims a dependent exemption can also claim the child credit, the American Opportunity higher education credit, or the American Lifetime Learning higher education tax credit. If you aren’t the one who gets to claim the dependency exemption but you are the custodial parent, you can claim the child care credit for any work-related expenses you take on for caring for a child under the age of 13. It might sound like you are taking advantage of your children but the truth is, if you’re not applying these things, you’re leaving money on the table.  Note: remember to carefully track those medical expenses and any charitable donations you might make towards your child’s fundraiser drive and use them to your advantage on your return. For assistance with keeping your records organized, install a convenient app such as Shoebox that turns your receipts into data.

Let’s face it—divorce is never fun. However, hopefully this post has shown you that there are some benefits you can take advantage of if you’re savvy about navigating post-divorce taxes. If you’re unsure of how to claim these credits and exemptions yourself, seek the help of a tax professional that has experience in handling these complex scenarios.

The post Navigating Taxes After Divorce appeared first on Home Business Magazine.

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