How Will Your Divorce Affect Your Taxes?
Divorce can be overwhelming on its own, but adding the possible tax implications of divorce to the mix can definitely contribute to the stress of the process. You and your spouse have already decided to split. Your lifestyle, future, and any children you both share will be affected by the separation. Decisions must be made regarding filing the paperwork and how you will handle mediation or time in court. The last thing you are probably thinking about when you are ending your marriage is your taxes, but the reality is that your divorce does have the power to impact your taxes both during and after the transition.
The first factor you should be aware of is your filing status. For example, the “Head of Household” status typically provides a slight advantage to divorcing taxpayers, compared to the “Married Filing Single” or “Single” statuses, but certain requirements must be met to be considered head of the household, so you need to ensure you are in line with those requirements first.
When it comes to your status, the IRS determines which one you are eligible for based on where you stand come December 31st. If you are married on this date, the IRS considers you “married” for the entire year. The same idea applies if you are divorced on December 31st; if you are divorced on that specific day, then you are considered divorced for the whole year. What does all of this mean? In short, if you divorced by the 31st of December in any given year, then you are not eligible to file as a married person for that year’s taxes, and your filing status is an important factor in how much money you owe or receive when tax season arrives.
Claiming a Dependent
If you are a parent, your divorce can also affect your taxes when it comes to claiming your children. According to IRS regulations, whichever parent the child spends more time with is the one who is eligible to claim the child as his or her dependent. The parent claiming the child must spend more than fifty percent of the year with them. Although there are ways to negotiate and work around this requirement, this is the general standard the IRS uses.
Property and asset division can get especially tricky during a divorce, particularly where taxes are concerned. For example, depending on which assets are transferred to you, and when, you may be required to pay taxes on those assets later on. This type of situation arises with brokerage accounts and other kinds of investments, which is why it is important to navigate property division carefully when entering into divorce.
One of the best ways you can ensure you are properly addressing the financial impact separation will have on your taxes is to speak with a knowledgeable Kane County divorce attorney today. Call Shaw Family Law, P.C. at 630-584-5550 for a free consultation.