Tax time is stressful for many people. When you consider the tax implications of a divorce, this time of year can become even more challenging for newly single individuals. In our last post, we shared some tips addressing commonly-asked questions. Below are a few more.
Many people who are recently divorced or are currently going through a divorce are unsure whether or not they can claim their children as dependents on their taxes. It is important to understand that even though the children may spend equal time with you and your former spouse, you can typically only claim them as dependents if the court designated you as the custodian. In cases of joint custody, the individual who has physical custody of the children for most of the year can claim them. If there are two children, each parent may claim one kid, to share the tax benefit.
Another common issue at tax time deals with alimony. Generally, the person paying alimony can lower his or her tax bill. Further, because it is an above-the-line deduction, you do not need to itemize to receive this tax advantage. However, if you and your former spouse continued to share a residence after the divorce, any alimony payments made during that time cannot be deducted.
While alimony is taxable, child support is not. Because it is tax-neutral, child support does not impact your taxes in any way.
Figuring out your taxes during or after a divorce can be stressful, considering all the changes that have recently taken place. However, by understanding the rules and knowing how to address certain issues, it is possible to maximize your tax advantage.
Source: Time, “Divorce and Taxes: Five Things You Need to Know,” Kelly Phillips Erb, 6 April 2011