When you first file taxes after divorce, you may wonder how the end of the marriage will affect this process. Planning for tax considerations when you negotiate a divorce agreement is often a smart financial move.
Review the common tax considerations for individuals who have recently divorced.
The Tax Cuts and Jobs Act of 2019 changed the way the IRS taxes alimony payments, also called spousal support. If you signed or will sign your divorce agreement after January 1, 2019, and you pay spousal support, you cannot deduct the amount of this support from your taxable income. If you receive spousal support, it does not count as taxable income.
If you divorced at any point during the tax year, you and your spouse will file separate tax returns. If you have primary custody of children younger than 18, you can potentially file taxes as the head of your household, which allows you to take a higher standard deduction. Otherwise, you will file as single.
If you and your former spouse have children together, you must decide who will claim them as dependents. Usually, the person who has primary custody has the right to dependent credits. If you share custody, you can document an agreement in your divorce paperwork. For example, you can alternate years to claim the children as dependents or you can each claim one child if you have two.
Discussing these issues during the separation period can potentially help you avoid costly tax issues or complex misunderstandings during or after your divorce.