For most of us, income tax season is a stressful time and this 2015 tax reporting time is no exception! The task of filing your return can seem even more daunting when divorce is involved. If you are newly divorced or in the process of finalizing your divorce settlement, it is crucial that you understand the tax implications of the decisions you make both in the creation of your divorce agreement and in the filing of your tax return.
There are many questions that must be considered. Here are 6 common tax filing questions that may impact divorced, separated or soon-to-be-divorced couples:
- What is the appropriate filing status?
- Who is head of household?
- Who can claim the exception for a qualifying child?
- Are alimony payments deductible?
- Is child support considered income?
- Are payments to my marital attorney deductible?
If you are unsure about how these tax questions might apply to you during times of divorce, we recommend that you consult either your tax attorney or your family law attorney. In the meantime, we offer a quick look and some answers that might help you address these questions:
Question 1: What is the appropriate filing status?
Answer: If you were married and not legally separated on the last day of the calendar year, you are considered married. You would file as either married filing jointly or married filing separately. On the other hand, if you were considered unmarried on December 31 of that year, you must file as a single person.
Questions 2 & 3: Who is head of household? – Who can claim the exception for a qualifying child?
Answers: Filing as head of household has several advantages. Most importantly, the standard deduction is higher and the tax rate is generally lower; also, the head of household is more likely to get a refund. Whether or not you are considered head of household depends upon several factors. In order to be deemed the head of household, you must be unmarried for the tax year in question and must have paid more than half the cost of keeping up your home during that year. Also, you must be able to claim a qualifying child or other dependent. That dependent must have lived with you for more than one half of that year. The custodial parent is usually the one who can claim the exemption for a qualifying child.
Questions 4 & 5: Are alimony payments deductible? – Is child support considered income?
Answers: Alimony payments are tax deductible for the payer, and income from alimony is taxable for the recipient. Child support, on the other hand, is not considered taxable income for the recipient; therefore, child-support payments are not tax deductible. It stands to reason that recipients would prefer to receive more in the form of child support and payers would prefer to pay more as alimony.
Question 6: Are payments to my marital attorney deductible?
Answer: Although legal fees to your attorney are generally not deductible, any fees you paid to your attorney for tax advice concerning your divorce are deductible. This includes fees paid because your attorney had to consult a tax expert for advice. You may also deduct lawyer fees that were paid in order to get or collect alimony. It is crucial that your divorce attorney keep an itemized accounting of the charges so that you have proof that the fees were used for these express purposes. For these and other deductions, you would have to itemize rather than take standard deductions. You will have to decide what is best for you.
Filing your income tax return can be a stressful, often confusing, task. The specific rules applying to divorced couples can make it even more disconcerting. If possible, we recommend that you consult either your tax attorney or your divorce attorney to be sure you follow and take advantage of all the provisions of the current tax code when formalizing your agreement and/or filing your tax return.
For additional information, see IRS Publication 504 for Divorced or Separated Individuals found here: https://www.irs.gov/uac/About-Publication-504