Filing Taxes After Divorce in California? Here’s What You Need to Know
Going through a divorce can leave you in a state of financial uncertainty. You may owe or be owed alimony or child support, as well as marital assets like a home, stocks, or part of a retirement plan. Additionally, your income filing status has suddenly changed. Your California divorce lawyer can help you understand the tax implications of your divorce and what to watch out for when you next file. Continue reading for a discussion of tax considerations after divorce, and contact a dedicated Claremont divorce attorney if you are facing divorce or other family law matters in Los Angeles or the San Gabriel Valley.
Who Pays Taxes for Alimony?
Until recently, federal law established that the payer of spousal support/alimony could take a tax deduction for their alimony payments while the recipient of alimony would pay income tax on alimony received. The 2018 Tax Cuts and Jobs Act shifted the burden. Now, there is no deduction for alimony payments, and the alimony recipient does not need to report alimony as taxable income.
Changing Your Filing Status
During your divorce, you may choose to file either jointly or separately, as long as you were legally married at the end of the tax year, December 31. Your tax burden is typically lower when you file jointly, so many couples choose to file jointly even during a divorce. You must both agree to do so. A tax advisor can help you determine your best option during the course of your divorce.
If you are in the middle of a divorce, have been physically separated for at least half a year, and have had at least one child in your care for over 50% of the time, you likely also qualify to file as “head of household,” which typically results in a lower tax rate.
If you are in the middle of a divorce, are not filing a joint return, and you do not qualify as head of household, you must file as married filing separately. Most people try to avoid this status as it carries unfavorable rates and provisions. For example, because California is a community property state, you may have to claim part of your spouse’s income on your return, even if you are filing separately. Consult a qualified tax advisor to make sure that you file properly while taking advantage of your best options.
Once your divorce is finalized, you can continue to file as head of household as long as you qualify to do so. Otherwise, you will file as single.
Determine Who Can Claim the Children as Dependents
The internal revenue code includes tax breaks for college students, dependent care credits, child tax credits, and a dependent exemption for each child. These credits and exemptions can greatly reduce your tax burden. The dependent exemption may apply to any qualifying child relative who is younger than the taxpayer, is under 19 years old, or who is under 24 years old and is a student.
After a divorce, only one tax return can claim each child as a dependent. If both parties claim the exemption, the IRS will typically grant it to the parent with whom the child resided most during the year. However, if the custodial parent does not claim the tax exemption, then the non-custodial parent can claim it. Determining who will claim the child as a dependent is often a part of a divorce settlement agreement.
If you’re considering filing for divorce in Southern California, get help from a family law attorney you can trust by contacting the dedicated and effective Claremont family law attorneys Blasser Law at 877-927-2181.