How Can Divorce Affect Taxes?
When you are going through a divorce, taxes are probably the last thing on your mind. However, tax time comes around once a year and never fails, so it is important to be aware of the various effects that divorce and related issues can have on your taxes. You should always discuss your specific situation with a Fort Worth divorce attorney, and the following is a brief overview of some ways that divorce might impact your tax filings and refunds.
Dividing Tax Refunds in Divorce
If your divorce is in process, you might look forward to your tax refund to provide a little relief, as divorce can cause financial strain on many people. However, if you are not yet divorced when you file your taxes or receive your refund, you might be shocked to learn you will likely have to divide your refund with your soon-to-be or ex-spouse.
Tax refunds are based on your income, which is community property in Texas. Therefore, a refund you get from tax overpayments can also be deemed community property, even if you file separately. Deciding whether you have to divide your refund 50/50 with your spouse or give them a specific portion will be situation-specific. Remember that your spouse will likely have to divide their refund with you, as well.
Filing Taxes and Claiming Dependents after Divorce
When you are married, you can enjoy certain tax benefits of filing jointly. However, this all changes when you end your marriage. If your divorce was final during 2019, the IRS considers you to be unmarried for the entire year. This means you will have to file as a single individual - even if your divorce was finalized on December 31st. You will need to file with the proper status, as well as look at whether you qualify as head of household, which can help the outcome of your taxes.
If you and your spouse have minor children, you likely never thought about who would claim them before. Prior to the Tax Cuts and Jobs Act of 2017, one parent would get to claim the children each tax year following a divorce, and this could be used as a bargaining chip during negotiations. However, the 2017 law put dependent deductions on pause until 2026, so this is not really a negotiating tool right now. There are still other credits the custodial parent can claim, however.
Support Payments and Taxes
Many people wonder whether paying or receiving child or spousal support (alimony) will impact your taxes. First, child support payments are not tax-deductible, and child support is not considered to be taxable income, so it should not play a tax role. In Texas, any payments made to an ex-spouse after divorce is called Post Divorce Spousal Maintenance. However, Texas did allow for contractual alimony. Alimony used to affect taxes for both parties, though recent tax reform changed this. Now, alimony is no longer tax-deductible or reported as taxable income.
Learn More from an Experienced Fort Worth Divorce Lawyer Today
The law office of Kyle Whitaker can advise clients on how divorce can impact many aspects of their lives, including taxes. Call 817-332-7703 or contact us online if you are considering divorce and need guidance.