Income tax may be the last thing on your mind before, during, or after a divorce or separation. However, these events can have a big impact on your taxes. Alimony and changing your name are just a few items you may need to consider. Filing taxes after divorcing or separating can be confusing. Here are some key tax tips to keep in mind if you get divorced or separated:
- Child Support. If you pay child support, you can’t deduct it on your tax return. If you receive child support, the amount you receive is not taxable.
- Alimony Paid. If you make payments under a divorce or separate maintenance decree or written separation agreement you may be able to deduct them as alimony. This applies only if the payments qualify as alimony for federal tax purposes. If the decree or agreement does not require the payments, they do not qualify as alimony.
- Alimony Received. If you get alimony from your spouse or former spouse, it is taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty. To do this, you can make estimated tax payments or increase the amount of tax withheld from your wages.
- Spousal IRA. If you get a final decree of divorce or separate maintenance by the end of your tax year, you can’t deduct contributions you make to your former spouse’s traditional IRA. You may be able to deduct contributions you make to your own traditional IRA.
- Name Changes. If you change your name after your divorce, notify the Social Security Administration of the change. The name on your tax return must match SSA records. A name mismatch can delay your refund.
- Who Claims the Children. Be sure to work out who will claim the children as dependents and for which years. Your lawyer can help you come up with a reasonable agreement ahead of time. Beware that if each ex-spouse claims the same dependents on his or her returns, it can delay filing and refunds.
- Filing Status. Depending on when you separated or divorced, your filing status may be married or single. It’s important to speak with your Dallas CPA to figure which is the most advantageous for tax purposes. After the divorce is finalized, you may qualify to file as Head of Household depending on a number of factors.
Health Care Law Considerations
- Special Marketplace Enrollment Period. If you lose your health insurance coverage due to divorce, you are still required to have coverage for every month of the year for yourself and the dependents you can claim on your tax return. Losing coverage through a divorce is considered a qualifying life event that allows you to enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period.
- Changes in Circumstances. If you purchase health insurance coverage through the Health Insurance Marketplace you may get advance payments of the premium tax credit in 2015. If you do, you should report changes in circumstances to your Marketplace throughout the year. Changes to report include a change in marital status, a name change and a change in your income or family size. By reporting changes, you will help make sure that you get the proper type and amount of financial assistance. This will also help you avoid getting too much or too little credit in advance.
- Shared Policy Allocation. If you divorced or are legally separated during the tax year and are enrolled in the same qualified health plan, you and your former spouse must allocate policy amounts on your separate tax returns to figure your premium tax credit and reconcile any advance payments made on your behalf.
Divorce is an exhaustive and complicated process, and taxes are unfortunately a part of separating what was once a union. Filing taxes after divorcing or separating should be carefully considered. Gurian CPA Firm can assist you with all of your tax needs. Call us today to schedule an appointment.
