The convoluted, cumbersome process of calculating your taxes may become more complicated following your divorce. The decisions you make at the settlement table could impact the amount of taxes you pay for many years into the future, and most certainly can affect you the first year you file as a single person.
The Internal Revenue Service (IRS) applies the following divorce-related tax rules:
- Child support — The IRS does not count child support as income. Therefore, you cannot deduct the support if you are the payer, and you do not need to declare the money as income if you are the payee.
- Alimony — Alimony is considered income. Therefore, you may deduct from your taxable income the amount of alimony you pay. Conversely, you are taxed on any alimony you receive from your spouse.
- Property settlement — Typically, the property that is subject to division is marital property, so its division is not recognized as a gain or a loss to either spouse if the transfer is made as incident to the divorce. There are several exceptions to this rule, including certain trusts and property belonging to nonresident alien spouses.
- Child tax credit — Both parents cannot claim a child tax credit for their child in the same tax year. The default IRS rule allows the custodial parent to claim the child. However, the parents can negotiate this point. You may each claim the child in alternating years, for example. Or, upon careful consideration, you may decide that one parent claims the credit every year in exchange for another benefit.
- Qualified domestic relations order — Complex tax rules apply to retirement and pension benefits, including tax penalties on transfers and deductions on contributions. Special rules apply in the case of divorce as long as you have a QDRO in place.
- Costs of your divorce — Unfortunately, you cannot deduct your court costs and legal fees associated with your divorce. You can, however, deduct fees paid for accounting, appraisal and actuary services associated with tax and alimony determinations.
Consult an attorney to learn more about how your divorce settlement might impact your tax filing in Tampa Bay, Florida.