Since yesterday was Tax Day, we think it's important to discuss the tax implications of divorce for couples in California. Couples getting divorced should be aware of how their taxes may change and the impact it may have on their finances.
Filing your taxes the first time after your divorce has been finalized can be quite complicated. Property and asset division, alimony and child support should all be taken into consideration when filing taxes.
Your marital status matters when you file taxes. Couples who got divorced any time during the year are considered single, so most individuals file as single. However, some couples may be able to file a joint tax return but it may not always be the best option.
Individuals can also file taxes and claim head of household, but their ex will have to file as a single taxpayer. Claiming head of household means you and your ex will have had to live separately for the previous six months.
You should also consider the impact alimony will have on your tax filing. Alimony is considered taxable income so if you receive alimony, you will be taxed on that amount. On the other side, alimony is tax deductible so if you pay alimony, remember to deduct the amount on your tax return.
When it comes to children, you should be aware of several ways your taxes may be impacted. You cannot deduct child support payments and you cannot be taxed on child support either. Another big issue involving your kids is who can claim them as dependants? Only one parent can claim their children as dependants so it best to discuss this with your ex to determine who will get the tax deduction.
Couples also need to consider if keeping the home is worth it or not. If one spouse takes on the mortgage payments, they can deduct the mortgage interest on their tax return. For couples who decide to sell the house, beware of the tax implications as it could significantly change how much of a profit you are able to keep.
Source: Reuters, "What's even worse than a divorce? For some, it's the taxes," Lauren Young, April 10, 2014