When you’re in the middle of a divorce, you don’t have time to focus your attention and energy on much else. But unfortunately, your taxes aren’t going to wait until you have less on your plate. Filing your taxes for the first time post-divorce can be complicated — and there are a lot of details you and your ex will need to sort out beforehand.
To help guide you through tax season, AA Tax & Accounting Services has put together a list of accounting advice for when going through a divorce.
5 Accounting Tips For When You’re Going Through a Divorce
1. Determine Your Filing Status
First things first, you need to understand your filing status. Your marital status will determine this at the end of the year.
Were you divorced by December 31st of the tax year?
If you were divorced by then, you and your ex would file your taxes separately. However, if you were in the process of splitting up but didn’t have all the details of your divorce finalized by the end of the tax year, you will still have the option to file a joint tax return should you choose to do so.
Until your divorce decree is finalized, you can file jointly — which is likely to save you money.
2. Navigate the Transfer of Assets
It’s important to note that when transferring property assets from one spouse to another during a divorce settlement, the person receiving the asset will not be required to pay taxes on it. However, if the recipient chooses to sell that property, later on, they will have to pay capital gains tax on all the appreciation before and after the transfer. When navigating the transfer of assets process, you need to consider the tax basis and not just the property’s value.
3. Understand Exemptions for Dependents
Once finalized, your divorce decree will state which partner can claim any children as dependents. If this was not specified in your divorce decree, the custodial parent obtains the ability to claim the child(ren) as dependents.
In scenarios where parents have joint custody, the parent which the child resides for most of the tax year gets to claim the child as a dependent.
Suppose, for some reason, you and your ex would prefer that the noncustodial parent claims the dependent. In that case, this is possible if the custodial parent signs a waiver indicating that they will not claim the child as a dependent on their taxes that year.
4. Consider the Implications of Child Support
Child support will not affect your taxes at all. The child support payments are not taxable income for the recipient. Similarly, the payments are not tax-deductible for the parent that is paying child support.
5. Factor in Alimony Payments
Unlike child support payments, alimony payments are taxable income for the person receiving them. Likewise, they are tax-deductible for the parent who is paying the alimony.
All the details surrounding the alimony payments must be laid out within your divorce agreement for alimony payments to be taxable. If the alimony isn’t listed in the decree, the Internal Revenue Service won’t consider the payments to be true alimony.
Tax Preparation Services in Cedar City, Utah
Divorce can be stressful, but navigating the tax process post-divorce doesn’t have to be. AA Tax & Accounting Services is a full-service accounting firm that can help you navigate the process seamlessly. Our team has spent years serving Cedar City, Utah, and surrounding Southern Utah towns.
Contact us today to schedule an appointment for individual tax preparation.