When you get divorced and separate from your spouse, there are a lot of things to consider, including your financial picture. Indeed, one way that divorce can affect your financial status is by affecting your taxes. If you are filing for divorce–or have recently divorced in Illinois–make sure you understand how your divorce will affect your relationship with the IRS.
Getting a divorce will likely affect your filing status, as you will now be filing as “single” rather than “married.” However, remember that if you were still married during the tax year that you are filling for, you will need to file as “married.” For example, if you were married throughout 2017, your divorce was finalized in January 2018, and it’s now April and you’re getting ready to file your taxes for the previous year, you will need to file as married.
Maintenance (Alimony) Payments: Deductions and Income
Another way that getting a divorce can affect your taxes is in the event that you are ordered to pay or receive alimony payments, also called spousal maintenance payments. For those who are ordered to pay maintenance (alimony), these payments are deductible from your taxes; for those who receive alimony, the payments are counted as income. Depending upon how much you receive, this could bump you into a higher tax bracket.
Keep in mind that child support payments are neither deductible nor counted as income.
Exemptions for Children
If you are the named custodial parent in your divorce decree, you may be able to derive certain tax benefits as such, including the dependent exemption, child care tax credit, and education tax credits. If you’re not sure what exemptions you may be able to take, working with an experienced tax professional is advised.
Remember that if you are paying medical expenses for a child, even if you are not the child’s custodial parent, you may be able to deduct these costs.
Home Sales, Asset Transfers, Etc.
When a couple divorces, property is likely to change hands or shift around a bit. This may mean that your home is sold, assets are transferred into (or out of) your name, or your retirement account is cashed out. All of these things can have a significant impact on your tax bill. For example, capital gains taxes on transferred property that is then sold can be a big financial blow, as can taxable distributions on retirement plan cash-outs. Again, always talk to a professional before filing your taxes.
How Might Divorce Affect Your Taxes?
When possible, the best thing that you can do is to figure out the tax implications that your divorce will have before your divorce is finalized; this way adjustments to your divorce settlement can be made before its too late. To learn more about how divorce may affect your taxes and how to strategize, contact the Naperville divorce lawyers at the law offices of Fay, Farrow & Associates, P.C. today for an initial consultation. You can reach us by phone or online.