It’s almost tax season, and with this time of year, many people ask if it’s the right time to divorce. If you do decide to divorce now, the good news is that your taxes may not be impacted right away. However, the taxes that you file in 2022 could be.
A divorce or separation can have an impact on your taxes, but it depends when it happens. For example, if you divorced at the end of 2020, then the taxes you file in April 2021 will be influenced by that divorce. You may have to pay taxes on alimony, get to take deductions related to spousal support, or have child support or custody issues that impact your tax credits and payments.
Changes in 2019 are reflected on this year’s taxes
In 2019, the tax laws related to alimony and separation changed. If you haven’t yet heard about those, remember that the changes in the Tax Cuts and Jobs Act altered how alimony would be handled on April’s tax forms.
Since that time, taxpayers receiving support have been expected to include it in their income for tax purposes. Those paying the support are able to deduct the payment from their income, potentially lowering their tax liability.
Your income matters for your taxes, too
Of course, changes in your household income, as well as changing to a single household will also impact your taxes. This can be a major adjustment, so many people who are divorcing or who recently divorced prior to the tax deadline benefit from speaking with an accountant and verifying that they are paying their taxes accurately.
Other impacts to consider include deciding who will claim dependents on taxes. Your child support, received or paid, is not deductible or taxable.
Take time to get your divorce finances in order
Major financial changes can result from a divorce. As you go through your divorce, you may want to work with a forensic accountant, tax accountant, attorney and others to be sure that you understand how your decisions will impact the upcoming tax season. From settlements to support, you need to know where you stand come tax time.