Divorcing couples must understand that many things in their lives will change, while other matters need prompt attention. Among the latter is addressing tax-related matters. Just how does a divorce affect your taxes?
By understanding the tax issues that come with divorce and making the necessary adjustments, you likely will avoid any surprises whether it be knowledge that you must pay a larger tax bill or will receive a sizable refund.
Filing status and W-4 form
Among the tax-related matters that a divorced person must address include:
- Filing status: If your divorce was finalized before Dec. 31, you may choose to file taxes as the head of household or single taxpayer. As the head of the household, you need to have had a “qualifying person” such as your child living with you for more than six months during the year. You also must have paid for more than half of the upkeep of the home for the year. However, if the divorce has not been completed by the end of the year, you may file jointly with your spouse or separately as a married person.
- Claiming children as dependents: Some divorce agreements include the stipulation that spouses will take turns in claiming their children as a dependent. They alternate each year.
- Revising the W-4 form: In filing this document, employees inform their employers how much money to withhold from their paychecks. A divorced person should adjust those allowances. Otherwise, he or she may discover that they overpaid taxes or find that they owe a rather large tax bill.
- Reviewing alimony: As long as the divorce occurred on or before Dec. 21, 2018, a payer spouse may deduct alimony and the spouse who receives it must include it as income.
- Child support: A paying spouse cannot deduct child support payments, and this money also is not taxable for the receiving spouse.
Understand the tax-related issues to address after your divorce. Then you will not get any surprises.
Understand how the changes affect you
Divorce brings many changes to your life. Make sure not to overlook the tax-related issues that come with divorce. Take the necessary steps to provide updates and understand how these changes will affect you.