If you’re considering divorce or already on the way to a split, it’s important to look at the broader financial implications of your potential newfound relationship status. For most, this starts with tax liabilities and the adjustments that come with no longer being considered “joint” filers. Below are three of the most commonly overlooked tax considerations that come with a divorce.
Your Filing Status
Let’s start with that filing status, which can make a difference depending on when you are officially deemed an individual. If you split up at the end of a calendar year, but the divorce isn’t official until the following year, then you can file as married-filing-separately or head of household to get kinder deductions and brackets. Once the divorce is official, you can file in a couple of different ways that reflect your new living situation.
Credits and Expenses for Children
Typically, only the parent that has the child or children for the majority of the year can claim the child tax credit or credit for other dependents. However, the non-custodial spouse can claim the credit if the other parent signs a waiver agreeing not to claim an exemption for the same child. Additionally, if you continue to pay your child’s medical bills post-divorce, you can include those costs in your medical expense deductions even if the other spouse has primary custody.
Specific IRA Contribution
Taxable alimony you receive qualifies as compensation for IRA contributions, so for the tax year 2020, if you’re at least 50 years old, you can contribute up to $7,000 to a traditional or Roth IRA (or a combination of the two). This can help accelerate retirement savings post-divorce if some of your assets were lost during the split.
Richard P. Arthur, Attorney at Law has 29 years of experience advocating for Dayton and Trotwood clients throughout the divorce process. He and his firm understand how complicated divorce can be and take pride in representing with care and compassion. Call 937-254-3738 to learn how his experience can work for you.