From the division of marital property to child custody settlements, ending a marriage often includes complex legal ramifications that can impact your family’s finances. But have you considered the tax implications?
Just as there are financial and legal to-dos for newlyweds, there are also tax-related administrative tasks to tackle once a divorce is finalized.
Most divorcees want to maximize their tax position — and minimize their pay out to Uncle Sam. While every situation is unique, here are some common tax reminders related to a divorce:
Tax filing status. Your marital status controls your filing status. When changing from married to divorced, your standard deduction and income tax payment will likely change as well.
Filing statuses are dependent on when a divorce is finalized. If the new year begins before a divorce is official, you’re still married in the eyes of the IRS and must file a joint return for the previous year or choose married filing separately.
Tax withholding. If you’re working, you need to update the amount withheld from your paycheck. Complete a new Form W-4 to revise your tax withholding amount within 10 days of signing your final divorce papers.
Child support. If you’re receiving child support, the amount is not included as part of your taxable income. If you’re the one paying the support, that expense is not deductible.
Alimony. Alimony is also not deductible by the party on the paying end. And similar to child support, the recipient doesn’t have to include it as taxable income.
Dependents. The custodial parent may claim a child as a dependent for tax purposes. By definition, this is the parent with whom the child spends the majority of nights.
Property settlements. If a marital property is sold as part of your divorce settlement, there can be significant tax ramifications due to unrealized capital gains.
These are general considerations and should not be taken as financial or legal advice. Consult with your legal or tax professional regarding your personal situation for guidance tailored to your specific needs.
Turning the page on a difficult time of life
Divorce can be the start of an exciting new chapter. But as you settle back into the single life, it’s important to handle financial and administrative chores for a clean a slate. The professionals at Magone & Company have the guidance and expertise in dealing with these tax matters and more. Don’t hesitate to give us a call today at (973) 301-2300.