New York couples who are thinking about divorce might not be aware of the implications that decision will have on their taxes. Knowing about tax ramifications may help individuals who are going through a contested divorce to make informed decisions about the division of their assets and liabilities.
One thing to be aware of is that a person’s filing status is determined on the last day of the tax year. For spouses who divorce any time prior to the year’ end, the IRS no longer considers them married. This means that they must file either as single or as head of household, with the latter status available if an eligible dependent lives with the taxpayer. Filing status is important because it determines the individual’s tax bracket, potential exemptions and eligibility for deductions and credits. For spouses who have separated but not officially divorced by December 31, there are two filing options: They may file separately so as to not be liable for their spouse’s taxes, or they may file jointly to take advantage of certain tax credits.
Some expenses related to divorce are tax-deductible, such as legal fees and alimony payments. For those who receive alimony, it is considered taxable income and must be claimed on the spouse’s tax return.
Divorce may impact the totality of an individual’s finances, from credit rating to retirement plans. For this reason, many individuals who pursue divorce consult with a family lawyer, who may help establish a plan of action to ensure clients’ financial health following a divorce. This includes the implications divorce may have on a spouse’s taxes moving forward.
Source: TaxAct, “How Marriage And Divorce Can Impact Your Taxes“,