As if taxes are not complicated enough, it can only get worse during your divorce proceedings. Here is some basic information to make the divorce process a little less overwhelming.
1. What is your filing status- Married Filing Jointly, Married Filing Separate, Head of Household or Single?
According to the IRS, for tax purposes your marital status is based upon whether you were married or not on DECEMBER 31st. If you are legally married on December 31st, then you are married for the whole year. Similarly, if you are divorced by December 31st, then you are considered divorced for the whole year. For instance, if your divorce was final before December 31st, 2012,then you do not have the option of filing as a married person for Tax Year 2012.
Additionally, you are considered unmarried for the whole year, if you have obtained a decree of annulment, which holds that no valid marriage ever existed. You must then file amended tax returns for all tax years affected by the Annulment that are not closed by the statute of limitations.
Once divorced, your filing options are reduced to either Head of Household or Single. In order to qualify for Head of Household, which may provide a slight tax advantage over Single or even Married filing Separate, you must meet the following requirements:
- Whether you (the taxpayer) paid more than ½ of the housing costs during the year?;
- Whether you (the taxpayer) lived apart from your spouse during the second half of the tax year in question?; and
- Whether dependent child(ren) lived in your home for at least 1/2 of the year?
2. Who can claim the children as dependents?
The IRS regulations state that the parent with whom the child spends more time may claim that child as his or her dependent. However, this is often discussed and negotiated during divorce proceedings and does not always follow this rule. Warning: this issue is important to address during divorce negotiations, as the IRS may run social security numbers to reveal if both parents are improperly claiming the children.
Child Care Exemption:
If you received any dependent care benefits from your employer during the year, you may be able to exclude from your income all or part of said benefits. To see if you may be eligible, contact a certified tax professional and/or refer to http://www.irs.gov/pub/irs-pdf/p503.pdf.
3. Are both Child Support and Alimony considered taxable income?
The simple answers are alimony – yes! And child support- No! The IRS will not accept a deduction for paying for the support of one’s own child(ren). As the agency sees it- it is a parent’s obligation to financially support his or her children.
In most circumstances, spousal support is tax deductible to the paying spouse and taxable income to the receiving spouse. (Always consult an experienced tax professional as to the tax ramifications of Alimony/spousal support).
4. Transfer of Property from one spouse to another during divorce proceedings- Not taxable.
Whether it is real estate, an investment account, a retirement account, cash or personal property- if made pursuant to a divorce, it may not be a taxable event. This also includes gift taxes. As the law sees it, you are not making a gift, but rather you are dividing and receiving your share of the marital estate- property that already belongs to you. The property transferred will retain its original basis for tax purposes. When the asset is sold, cashed in or otherwise disposed of in the future, the tax basis is the same as it was with the spouse who originally held title to that asset. However, in order to ensure that this is done properly and the asset remains not taxable, contact an attorney and/or an experienced tax professional to ensure that you are complying with the proper procedures, if any.
The information contained above is for informational purposes only and not intended to be tax advice or in any way creating an attorney-client relationship. Before acting upon or making any decisions based upon the general information contained within this page, you should first consult an attorney and/or an experienced tax professional.