Tax Planning and Tips for the Divorced and Newly Divorced

Date Posted:December 10, 2014 | Categories:Divorce and Dissolution

Ohio Tax Planning Divorced

Taxes can be daunting, no matter the situation.  Some spouses file joint tax returns and have never had a need to review investments or other tax concerns with the other spouse.  However if you find yourself newly divorced and preparing your tax returns individually, there are a few things you should note. Whether it is the filing status, allowable deductions, or who gets to claim children of the marriage as dependents, filing individually can be a real challenge.  Rather than go through this process alone, work with an experienced Columbus, Ohio divorce lawyer so you understand the future tax implications of your divorce settlement.  Below you will find useful tips to help you navigate the newly available benefits of filing as a divorcee. 

Income

Receiving a divorce decree that mandates spousal support payments may feel like punishment, but the tax code has built in some protection for those ordered to pay. If you are paying spousal support to your former spouse, the payments are made in pretax dollars, meaning you deduct the amount you pay in alimony before you calculate your adjusted gross income (AGI).  However if you are receiving spousal support, that is treated as income and is part of your tax liability.  This is something to consider if you are finalizing your divorce decree.  Will the receipt of spousal support be sufficient to offset any tax liability that you will have for the receipt of the funds?

The law is clear on child support, however and mandates that child support will not be treated the same as spousal support for tax purposes.  Sound confusing?  This is why hiring an attorney to work with you on your divorce is so important.  With access to resources and experts, skilled divorce attorneys are able to help you plan for your financial future after divorce.  If you have questions about your tax liability for spousal support payments, or how child support payments will affect your income, work with an attorney to help clarify the tax liability for your specific situation. 

Filing Status

One of the most often asked questions involves determination of your filing status.  What is the cutoff date that the IRS uses to determine whether or not you should file a joint or a separate return? This is important as many spouses often have a change of income, and new tax liabilities among other things.  Your filing status is determined on December 31st no matter when you completed your divorce during 2014.  If you have been divorced for 6 months, or 21 days, the only thing the IRS will look at is your marital status as of December 31st

When you file as an individual rather than jointly you are no longer afforded certain tax breaks.  Spouses who file joint tax returns are allowed one of the largest standard deductions, allowing them to deduct a substantial amount of income that will not be taxed.   In essence those filing jointly are able to keep more of the income earned over the year.  In comparison, those who file separately while married may do so to get certain tax breaks on large out-of-pocket medical expenses.  Generally it is more beneficial for spouses to complete a joint return, which is why those who are newly divorced have some challenges filing an individual return.  When taking the steps to negotiate for and finalize your divorce decree, it is important to consider the future tax implications.  Work with a Columbus, Ohio divorce attorney to better understand the impact your divorce decree will have on your finances and taxable income. 

The individual return status will allow for new deductions that may not fully offset the joint return deduction.  A person between the ages of 25 and 65 may qualify for the Earned Income Tax Credit, which is meant to offset the burden of Social Security taxes.  For other advantages of filing separately, speak with a Columbus, Ohio divorce attorney about your specific situation.  A trained divorce lawyer can advise the best course of action and the tax implications during your divorce proceedings. 

Allowable Deductions

Certain deductions are only available to those who are married and filing jointly, as mentioned above.  Some additional deductions can be made that should be discussed for the newly divorced spouse.  If you and your former spouse shared a marital home, the spouse who remains in the house is eligible for the deduction for the payment of the mortgage.  During negotiations it is important to clearly outline who is responsible for the marital home, and who gets the corresponding deduction. 

Other deductions include attorneys fees used in the divorce proceedings, but you have to meet a specific set of circumstances to be able to deduct these fees from your taxes.  While the costs of the divorce are considered personal, some of the itemized fees can be deducted. Contact a Columbus, Ohio divorce attorney to see if you are eligible to deduct any of the costs of the divorce from your taxes.  As mentioned, everyone has a different situation and it is best to advise on a case-by-case basis.  This is why finding the right attorney is so important. 

Claiming Dependents

Which spouse claims the children as dependents? This is the last big question most Ohio divorce attorneys hear regarding filing taxes as a newly divorced spouse.  Such an important question usually comes up in divorce proceedings, as the custodial parent generally gets to claim the children of the marriage as dependents.  If you and your newly ex-spouse are both working and providing for your children, or you have a joint parenting agreement, you can elect to alternate who includes the children as dependents on tax documents.  This must be explicitly stated; otherwise you could run the risk of both filing tax forms listing the same children as dependents.  Unless it is specifically drafted into the divorce decree, the law is clear on this point.  Work with a Columbus, Ohio divorce lawyer to finalize your divorce. 

Rather than worry whether or not you have properly prepared your tax filings properly as a newly divorced spouse, work with a professional.  Divorce attorneys will understand the process of the divorce, and act as an advocate for your financial future.   Not only do attorneys have an understanding of the law, but they also have the resources to find answers for questions about your tax liabilities after divorce.  With proper planning and negotiations during the divorce proceedings, you can reduce your tax liability and have a clear understanding of the taxes that you will need to pay in the future.  With proper financial planning and the help of experts can you have peace of mind when completing tax returns with a new filing status.  

Only after careful review of all financial factors surrounding your specific situation will an attorney be able to provide the correct tax guidance.  The attorneys at Edward F. Whipps & Associates have the experience and close relationships with tax experts as well as the knowledge of how to properly research the tax implications of a new divorce settlement. This information allows them to help clients make the best financial decisions available, and prepare for their financial future.  You can schedule an appointment online, or call for time to meet and discus your specific situation.  Contact Edward F. Whipps & Associates for a free consultation at 614-461-6006, or call our Dublin office at 614-461-6007.