Benjamin Franklin once quipped that “…in this world nothing can be said to be certain, except death and taxes.” We’ve previously written about the importance of updating your estate plan post-divorce, but have said little about the changes to your taxes that come when you un-tie the knot. In this blog post, we’ll tackle the other half of Franklin’s aphorism.
Tax Tips for Divorcing Couples
1. Timing Is Everything
No matter what day of the year your divorce is finalized, the IRS will consider you unmarried for the entire year. This means you cannot file a joint tax return for the year your divorce is finalized, even if you don’t leave the courthouse until the afternoon of December 31.
If you are separated, but your divorce has not been finalized, you have a few different options for how to file your taxes. You can file jointly, or “married filing separately,” but the IRS will consider you married. This is true even if you have been living apart since January 1.
Timing also matters when you and your ex are trying to figure out who gets to file as a “head of household” and claim the related tax benefits. If you and your ex share custody of your children, one of you will probably have physical custody of the children more frequently than the other. That parent should be able to count the children as “qualifying persons” or dependants for tax purposes. If you and your ex share equal parenting time, the partner designated as the custodial parent in the divorce decree gets to claim the “head of household” title and related tax benefits.
2. Location, Location, Location
One or both parties of a divorce typically move out of the previously shared family home.
If you end up selling your home in the Reading, PA area for a profit, you and your ex may need to pay a capital gains tax. How much you owe depends on how much your house sold for, and when the sale occurred. You may owe less if the house sold before the divorce was finalized.
As you are probably aware, if you are moving away from Pennsylvania, you may need to file taxes in both Pennsylvania and whatever state you move to, not just one or the other.
3. Alimony & Child Support
The Tax Cuts and Jobs Act of 2017 significantly changed how the tax code treats spousal support or alimony payments. For divorces finalized after December 31, 2018, these payments cannot be deducted by the payer, and they do not need to be reported as income by the recipient.
Child support payments have never been tax-deductible, nor are they considered income for tax purposes.
4. Phone A Friend
Even if you have always done your taxes on your own in the past, it does not hurt to seek professional help the first year your file taxes post-divorce. Attorney Gary R. Swavely is always happy to help past clients — or their accountants — figure out how their divorce impacts their taxes. Please reach out if our office can be of assistance.