When you and your significant other decide to dissolve your marriage, there is a long list of things that must be dealt with. Many of these things will impact your end-of-the-year taxes, which is something that you likely have not thought of. And, unfortunately, this is yet another headache to deal with. The good news is that there are a few things you can do to help make the situation a bit more comfortable when it comes to tax time. Keep reading to learn more.
Alimony Payments Can Be Tax-Deductible
If your divorce agreement requires that you pay your ex-spouse alimony payments, it may be possible to deduct those payments from your taxes at the end of the year. However, there are certain stipulations in order for these payments to qualify as a deduction. For one, these payments must be outlined specifically in your divorce agreement and not just be a payment that you make directly to your spouse for a non-court-ordered reason. In addition, you will need to report your ex-spouse's Social Security number so the IRS can verify that they reported the alimony payments as taxable income.
Filing Status Can Help
Your filing status will be controlled by your marital status come December 31. So, if you have separated but are not officially divorced by the end of the year, it is still possible to file a joint tax return, which can potentially save you both some money in the long run. Alternatively, you can file by choosing the married filing separately status or file as head of household, depending on your individual situation. Once officially divorced, if you have a dependent who lives with you over 50 percent of the year and you pay for over 50 percent of the home maintenance, you can file for head of household, which will allow you to claim a larger standard deduction and get access to better tax brackets.
As a general rule, you cannot contribute to an IRA unless you have earned income from self-employment or a full-time job. However, for some divorced individuals, there is an exception. It may be possible to contribute to a traditional or Roth IRA with taxable alimony, which can help save you money come tax time.
There are many other steps that can be taken to make your divorce a bit more "tax-friendly" so to speak. To find out more information, speak to a tax planning professional in your area.Share