Divorce or a legal separation can mean changes not just in your domestic situation, but also in your taxes. Though tax season may seem far away, having in mind the following points and making adjustments now can mean fewer surprises when it does come time to file with IRS next year.
Here are the top things your tax attorney wants you to know if divorce or legal separation has made a change to your domestic situation.
- Your name as filed with the Social Security Administration must match the name on your tax return. If you change your name after a divorce, then make sure that you also submit an application for an updated Social Security card. If there is a discrepancy between the name on your tax return and what is on file with the Social Security Administration, your return may be delayed.
- Know what you CAN and CANNOT deduct. If you are required to make alimony payments, you may be able to deduct these on your taxes. However, child support or contributions to your former spouse’s IRA account are not tax deductible.
- Know what IS taxable and what ISN’T. If you receive child support, you won’t need to pay taxes on what you receive. However, alimony received is taxable in the year you receive it.
A special note of caution from your tax attorney: There is no tax withholding on alimony payments, so consider making adjustments to your tax withheld from your wages or make estimated tax payments to avoid a penalty.
- Make changes to your health care. Remember that you must maintain health insurance every month of the year, or else pay a penalty at tax time. So if you lose coverage due to a divorce, you’ll need to obtain new coverage right away. If you and your former spouse have insurance through the Health Insurance Marketplace and receive advance payments of the premium tax credit, report changes in your domestic situation. Doing so will help ensure that you receive the right amount of financial assistance and don’t end up having to pay a portion of the credit back when you file your taxes.
Seek the advice of a qualified tax attorney that understands your situation and can help you to plan wisely. Knowing the tax implications that result from divorce or legal separation can help you to make proactive adjustments, rather than facing reactive penalties when tax time arrives.