If you are preparing to divorce, you may be dealing with many confusing changes. It is possible that your entire routine will be different because of custody schedules. Your living arrangement will potentially change dramatically, and you may be figuring out how to managing the new reality of a single-income household.
Another change you may not have thought about is the way you will do your taxes after your breakup. A divorce can affect numerous aspects of your tax returns, and it can become confusing and overwhelming. It may help you to have a general understanding of the kinds of issues you may face when you prepare your taxes. This way you can work to structure your divorce to minimize its tax ramifications.
Recent changes in tax laws brought much attention to spousal support. If you end up paying alimony, you may no longer use it as a deduction. If you will receive alimony, you do not have to claim it as income on your taxes. This may reduce the amount of taxes you will pay. Additionally, receiving alimony without reporting it as income may mean the salary you report will be low enough to qualify you for some social programs with income limits. This may offer you more options for financial support.
However, if your spouse intends to pay alimony to you by transferring it from an IRA, that money may be taxable. Also, you may not invest spousal support payments in an IRA, so you may have to look for other ways to save for the future.
Other tax issues after a divorce
During property division, you may end up liquidating assets, selling the house, dividing retirement accounts or making other financial decisions. Each of these could have serious tax ramifications, and you will want to learn as much as you can about your options for reducing those burdens. Other tax issues may include the following:
- You may not deduct legal fees or other divorce-related expenses.
- You may not take exemptions for dependent children for whom you are paying child support.
- You may, however, be eligible for the Child Tax Credit if your children are under age 17.
The trick is to address these and other issues and concerns as soon as possible, preferably before your divorce is final. Speaking with a Connecticut tax attorney who is familiar with federal and state tax laws may provide you with information and guidance so you can proceed with your divorce without fear for the future.