The divorce rate still hovers around 50% in Tennessee for first time marriages. With half of marriages ending in divorce, it is important to know how that impacts each party during and after the dissolution of the marriage. The hidden tax implications are not something you want to discover come tax time.
The IRS publication 504 for Divorced or Separated Individuals provides information on dependents, filing status, property settlements, alimony, community property and tax withholding. A spouse awarded alimony can expect to pay taxes on that amount, while the paying spouse can deduct the same amount. Child support is not tax-deductible and the receiving spouse does not pay taxes on the amount.
How a couple files their taxes could change during separation and following divorce. Some of the taxes may be subject to joint filing and others to individual responsibility. A couple not divorced that year must file married either jointly or separately.
Child and Dependent Care Expenses covered in IRS Publication 503 focus on earned income, provider care and tax credits. While married, a joint filing couple may have qualified for the child tax credit. Upon divorce, only one parent may claim the child and may no longer qualify for the credit. A spouse who did not work prior to divorce may now qualify for work-related expenses regarding childcare.
When preparing for divorce, consider all the financial implications of splitting the household up. Understanding the potential tax implications of divorce could help you better prepare for filing your returns.