How Are Taxes Affected By Divorce?
On behalf of Law Office of Kyle Whitaker posted in family law on Monday, August 29, 2016.
Going through a divorce can be one of the most stressful events in your life. Child custody, name change, relocation, and emotional turmoil are only a few of the things you need to think about, not to mention the cost. Some of the fees involved in divorce include: attorney’s fees, court costs, mediation fees, home refinancing costs, child support, and alimony. With so many things to think about, it’s easy to completely overlook how taxes are impacted by divorce, but this is a very important aspect to think about.
Navigating Taxes In Divorce
According to Tax Effects of Divorce or Separation, a report from the IRS, there are many areas in which your taxes can be affected by divorce. In many cases, if you don’t take the proper tax-related action, you could face being charged a penalty, so it’s important to understand divorce tax laws.
What Is Taxed?
According to the report, alimony that you pay or receive has a tax impact. If you pay alimony, that is tax deductible, and if you receive payments, that money is taxable. If you are on the receiving end, tax is not withheld from each individual payment, so you may end up needing to pay more taxes throughout the year, or be charged a penalty.
What Isn’t Taxed?
While alimony is taxed, voluntary payments are not. If you and your ex have worked out a payment plan or deal on your own, this money will not be taxed and cannot be deducted.
Child support is also not taxed, nor are the payments deductible.
If you made payments to your spouse’s IRA during the tax year that your divorce was finalized, you cannot deduct any of those payments.
Other Tax Considerations
If you are changing your name as a result of your divorce, it’s important to change your name with the Social Security Administration and to make sure your name with social security matches the name on your taxes. Failure to do so could result in a major headache for you, and a delay in your tax refund.
If you were under your spouse’s health care plan, you will lose that coverage through the divorce. For tax as well as health purposes, it’s important to make sure you find other coverage for you and dependents that you claim on your taxes. Depending on your circumstances, you may be able to take advantage of the premium tax credit (PTC) to help afford health insurance.
Talk To Someone With Experience In These Matters
With so much on your mind when you’re going through a divorce, it can be easy to forget or overlook something, such as taxes. An experienced lawyer can help you understand all of the financial impacts of divorce, including tax consequences. Contact the Law Office of Kyle Whittaker today to find a lawyer who will help you navigate the financial aspects of your divorce.