6 Tips for Divorce and Tax Day

Wednesday, July 15th (the extended tax filing deadline due to covid-19) is almost here. If you are contemplating divorce or you are getting divorced, questions regarding your taxes are sure to be prevalent as you go through the process. Here are 5 tips to help you understand and navigate the path ahead of you:

1. Alimony: For divorces finalized after December 31, 2018, alimony paid to an ex-spouse is no longer be deductible by the payer, and alimony payments will no longer be included in the recipient’s gross income.
2. Child support is neither tax deductible nor tax includable.
3. Deciding who claims dependent children: Claiming dependents can become complicated during divorce, with one parent being considered the custodial parent and receiving the majority of the tax benefit. Through the negotiation process, however, parents can elect different ways to allocate the dependency exemptions, if they prefer. This can enable both spouses to save on their taxes.
4. Innocent spouse relief: This rule was designed to protect men and women from liability for taxes incurred as a result of evasive or deceitful financial behavior by their spouses. Still, there are strict requirements that must be met under the rule in order to qualify.
5. Filing status: If you are in the middle of a divorce, you may file a joint return only if you are married at the end of the tax year (December 31) and both of you agree to the filing. You qualify as married even if you are separated, as long as a final judgment of divorce has not been entered. If you do not file joint returns and if your divorce is not yet complete, you must file either “married filing separately” or “head of household,” depending on your circumstances. If your spouse is self-employed or you have concerns about him/her not fully declaring income, this may be a good reason to consider filing a separate return.
6. Legal Fees Pursuant to a Divorce: Prior to the Tax Cuts and Jobs Act (TCJA), you could deduct fees you paid that were associated with generating income, such as if you had to pay a lawyer to get an alimony order. The TCJA has eliminated this deduction.

Finally, take a look at IRS Publication 504, titled “Divorced or Separated Individuals.” This Publication explains tax rules that apply if you are divorced or separated from your spouse. It covers general filing information and can help you choose your filing status. It also can help you decide which exemptions you are entitled to claim, including exemptions for dependents. Contact The Law Office of Joseph A. DiPiazza, LLC at (201) 494-2800 to schedule a legal consultation for any questions you may have about the divorce process.