With the tax deadline behind us, it’s unlikely that a lot of people have next year’s taxes on their minds. But for couples presently going through divorce proceedings, it might be a good idea to at least consider next year’s tax filing. That’s because some of the decisions you make this year during divorce proceedings can change how you address your taxes next year.
Here is a list of five important decisions made during the divorce process that should take extra consideration if you do not want to negatively impact your filing status next tax season.
- Requesting alimony payments. Most people only consider requesting alimony payments after carefully considering what their financial situation will look like after a divorce. But what most people don’t realize is that the IRS requires recipients of alimony to claim these payments as income on their tax returns. Unfortunately, the person making payments does not get to claim these payments as an exemption.
- Becoming the custodial parent. For a lot of divorcing parents, winning primary custody of their child is a victory in and of itself. What makes it better is the fact that custodial parents typically get to claim their child as an exemption on their taxes too, particularly if the child spends most of his or her time in the custodial parent’s home and the child does so for more than half the year.
- Requesting health insurance coverage. If you’re currently receiving health care coverage under your spouse’s plan, know that divorce can cause you to lose this coverage. Because current health care laws require you to have qualifying coverage for every month of the year, this could cause you to incur a tax penalty unless you seek new coverage or make arrangements with your soon-to-be ex-spouse.
- Selling the marital home. Typically, the first $250,000 gained in the sale of a home may be excluded from an individual filer’s income while $500,000 is the allotted amount for married couples. Determining when this credit applies depends on when a divorce is finalized. As a result, some couples hold off on finalizing their divorce so that they can file jointly and get the better exemption on their taxes.
- Finalizing the divorce. The date a divorce is finalized is a very important one in terms of filing a tax return because it dictates whether it is more beneficial for a couple to file a joint return or if filing separately is a better option. As in the case of selling a home, some divorcing couples may find it more beneficial to wait to finalize a divorce for tax purposes.
For a more in-depth look into how divorce decisions impact taxes, the IRS provides detailed publications on everything we covered here today, including a page on various divorce and separation tax factors as well as an article on selling a home.