Posted by Abundant Wealth Planning LLC

Essential Tax Tips for Recently Divorced

Essential Tax Tips for Recently Divorced

For people that have combined their finances with their partner over the years, having to file your taxes alone might be a shock. However, there is enough information to make filing as a divorcee easier, even though there are no unpleasant surprises. 

All you need is some knowledge on how to handle the situation and get a good tax advantage.


  1. Child Support

You cannot deduct child support payments as part of your tax. As a result, the party supplying the monthly checks will not write it off on their tax return. Also, the child support paid to the receiving party is not classified as income. 

This is an advantage to the receiving party as such is money that will not be taxed. However, be sure to understand the terms of your divorce agreement that comes with various rules.

  

  1. Exemptions on Dependency

You should always keep in mind not to do the tax year after the divorce year because both parents are trying to claim the kids as their dependent. This should never happen any year after the divorce. Having a kid comes with a superb tax break, and Uncle Sam knows it, but two people cannot claim a single person. 

The terms of your divorce might specify which parent can claim the kids as a dependent. With this, you don’t have any issues. 

However, if it was not specified, it is assumed that the custodial parent (the parent who takes care of the kid most of the time) is allowed to claim the credit. Should the custodial parent forgo the credit, it can go to the noncustodial parent. You will fill Form 8332 to declare the years where you will waive the credit. 


  1. Head of Household 

The head of household tax break does not necessarily favor the custodial parent. However, everyone who wants to increase standard deduction can take advantage of the head of household status provided they qualify. It also has the advantage of sending people into a lower tax bracket though only unmarried people with a qualifying dependent or kid can file using this. 

Provided someone meets the specified requirement, filing with the head of the household status is possible. A kid that qualifies needs to live with you for over 180 days even though the terms of your divorce need to specify it.

 

  1. Alimony

Sadly, Alimony expenses cannot be deducted as the payer cannot deduct them, and receivers need not claim it as income. However, this is not a license to give a huge check a few years after the divorce and turn your back. 

Based on Uncle Sam’s understanding and specification, alimony payments in excess amount for a short period after the divorce is classified as property settlement funds

A good alternative to alimony and child support is family support, which combines the two checks into one. Family support was sometimes considered alimony, which the payer can deduct, and the payee will be taxed. The 2017 TCJA eliminated this, but you can consult a tax expert if you are not satisfied.


  1. Assets

In the same way, the tangible property could have a positive or negative implication; assets like 401(k) accounts and IRA are not classified equally. Therefore, it is essential to know what you are getting now and later when you divide assets with important tax rules. 

Take note of a Roth IRA that will be funded using after-tax dollars, with the implication that you will make contributions known on your tax return. Even though this might be unappealing for a little while, the money available for withdrawal will not be taxed. 

On the other hand, with a 401(k), your money will be tax-free, even though there are taxes when you withdraw. The implication is that a Roth IRA will be above a non-Roth IRA. 


FOR MORE INFORMATION ON HOW ABUNDANT WEALTH PLANNING, LLC. CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


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