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Tax Season and Divorce

Tax season is here, and while you may be distracted with a contested or agreed divorce, your tax filing responsibilities aren’t going anywhere. Here are some of the biggest tax issues that many people going through a divorce don’t consider.

5. Select the Right Federal Tax Filing Status

Whether you are filing your taxes through a specialty company, tax man, or online, you want to ensure that you are filing your status correct. If you are currently going through a divorce in Texas and it is not finalized, then you are still technically married. You will be able to file as divorced on your taxes the year after your divorce.

For example, if you were divorced on the last day of 2017, then you can file as a single person. Even more comes into play if you have children or head of household status. Knowing the changes in your tax bracket for the filing year is important.

4. Claim Exemptions if You are Eligible This Tax Season

If your divorce involves child custody and you are the custodial parent in your divorce, then you may be able to lower your taxes through the dependent exemption. You may also be eligible for the child care tax credit and education tax credits.

Before filing your taxes, you will want to review your divorce documents in order to be positive about who claims the children as exemptions. This should be laid out in your divorce agreement. However, if you maintain joint custody, the exemption goes to the parent that has the children the most number of days during a tax year.

3. Avoid Deduction Mistakes

Don’t let yourself mess up on tax rules during tax season, especially when it comes to child support. You nor your ex can deduct child support payments made throughout the year. On the opposite end, the child support received is not taxed as income.

Double check your records to see if alimony has been agreed upon as a taxable income (This only applies to alimony ordered by the court prior to the end of 2018 as the tax code has changed). Yet another key aspect of divorce that is often overlooked is mortgage interest and property tax deductions. The deductions all depend on what happened to the marital home and who assumed it in the settlement. If a spouse buys the other out of the home, they also get to keep the tax shelters moving forward.

2. Review Legal Fees Paid During Divorce

Most legal fees are not tax-deductible. However, fees that have been paid in order to gain advice on the tax consequences of your divorce can be itemized as a deduction. This can be done on Schedule A of your tax return.

1. Keep an Eye on Your Withholding Status

If you are in fact receiving alimony, you should think about asking to have extra tax withheld from your work paychecks. This withholding can help you cover your new tax liability. If your withholding isn’t enough to cover your taxes for the next year, we suggest setting up quarterly tax payments so that you won’t owe taxes at the end of the year (This only applies to alimony ordered by the court prior to the end of 2018 as the tax code has changed).

Marx, Altman, and Johnson Understands Divorce and Taxes

If you are going through a divorce and have questions on how your divorce will impact your taxes in the future, we are here to help. Your taxes during a divorce year may more have unique issues than in other tax years, so it always prudent to get tax advice from a tax professional when going through a divorce. Aside from legal tax questions, we can navigate you through child custody, property division, and more. Call us today to find out about our divorce process.