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|Tax (Photo credit: 401K)|
With the federal income tax filing deadline a little under a month away, many California residents are feeling the pressure of preparing and filing their taxes on time. Filing your taxes can be confusing regardless of your financial situation. However, they become even more complicated when you have undergone a major life change in the last year, such as a divorce, legal separation or other family law issue.
A divorce is stressful enough and despite your circumstances, the government will still expect you to file your taxes promptly and correctly. If you are really confused about your taxes, the best thing to do is to seek assistance from a tax professional. Nevertheless, there are a few standard guidelines for filing taxes after a divorce.
What is my tax filing status?
Most importantly, you must decide the correct filing status to use. In general, your federal income tax filing status is determined by your marital status as of the last day of the tax year. Thus, if you were married on December 31, 2011, you will be considered married for the entire year. If you were divorced on December 31, you are considered divorced for the year. In general, a person who is legally separated is not considered as married. This can vary based on state law, however, so may be a good idea to double-check with a California family law attorney. Even if you were still married on December 31, you can choose whether to file jointly or separately.
Can I Qualify as a “Head of Household”
If your divorce was final on or before December 31, 2011, you can either file as single or as head of household. Filing as “head of household” may result in a lower tax bill than if you were to file as single, but this designation has strict requirements. To qualify as head of household you must:
- maintain the primary home of household for a qualifying child, or someone you claim as a dependent for more than half the year
- be unmarried at the end of the year or living apart from your spouse for more than six months
- provide more than half the cost of maintaining the household
- be a U.S. citizen or resident alien for the entire tax year
Note: It may not be clear who had custody for more than half the year and is able to file as a head of household when parents have joint physical custody of their child. The parents should agree between themselves how to handle this issue. A daily log of exactly where the child lives during the year should be kept, as well as a record of household expenses and who paid them.
Can I claim an exemption for my children?
In general, a child’s custodial parent will claim the child as an exemption in their taxes. Although, in some cases, it may make sense financially to trade the exemption to the other parent. A financial planner may be able to help you determine the best use of the exemption.
Are child support payments considered taxable income?
In almost every situation, child support is tax neutral. Child support payments are not taxable income for the parent receiving the support, nor is it tax deductible for the parent paying the support.
Are alimony payments considered taxable income?
Spousal support, on the other hand, is considered income for tax purposes. Such payments are almost always taxable income for the recipient –and they are tax deductible for the payor. There are some guidelines and qualifications in regards to spousal support. Alimony must be included in an official court order or court-approved settlement in order to qualify for tax deduction. In addition, any alimony payments made while the spouses lived together may not be deducted.
Are assets transferred as part of my divorce settlement agreement taxable?
In general, when assets are transferred as part of a divorce settlement agreement, the person that receives the transfer does not need to pay taxes based on the transfer alone. However, if the recipient decided to sell the asset at some future date, they would likely have to pay capital gains on the appreciation of the asset both before and after the transfer.
It cannot be denied that there are many details to consider when preparing your federal income tax return. If your situation is especially complicated, it may be a good idea to enlist the services of a California tax or family law professional to guide you through the process.
Sources and Related articles
- 7 Tax Tips for Women (dailyfinance.com)
- The Tax Implications of Divorce (turbotax.intuit.com)
- Tax Tips for Women Going Through Divorce (Forbes.com)
- Seven Key Things Women Need to Know About the Tax Implications of Alimony Payments (Forbes.com)
- Publication 501 – IRS (irs.gov)
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