Believe it or not but it's already time to start thinking about fling your income taxes again. If you went through a divorce in 2015, you are currently going through a divorce or you may be headed for a divorce in 2016, then there are some important tax consequences that you should know about, including:
The date your divorce is finalized affects your filing status
The Internal Revenue Service (IRS) determines your filing status based on your legal marital status on Dec. 31. That means even people whose divorces were not finalized until the end of the year still must file as s single taxpayer for the entire year.
For that reason, some people decide to hold off on finalizing their divorce in order to filed as married for one last year if it will lead to additional tax savings. But those who were subject to what's known as the "marriage penalty" because of joint income would likely be better off finalizing their divorce before the year's end and filing single.
The marital home can lead to tax consequences
If you sold the marital home during or after your divorce, then a capital gains tax may apply. Capital gains tax is a tax that applies when the gains of the sale exceed a certain amount.
If you sold the house at the time you were getting divorced, then you are each entitled to exclude the first $250,000 of gain from your taxable income, or $500,000 total, so long as you lived there for two of the five years before the sale.
No capital gains tax applies if one spouse stays in the home, buying out the other spouse. However, if that spouse eventually decides to sell, then capital gains tax would apply and the spouse would only be entitled to exclude $250,000 (so long as the spouse had lived there for two years before selling).
Filing head of household status can greatly reduce your taxes
If your divorce was finalized anytime in 2015 and you qualify for head of household status, then you will enjoy some great tax benefits. Heads of household are taxed at a lower rate than single filers and also enjoy a higher standard deduction.
To qualify for head of household status, you must: 1) be unmarried as of Dec. 31, 2015, 2) have paid more than half of the costs of "keeping up" your home during 2015, and 3) have had a dependent child living with your for more than had of 2015, not counting temporary absences.
Alimony is taxable income; child support is not
If you paid or recieved spousal support in 2015, then tax consequences likely apply. Generally speaking, the ex-spouse who pays spousal support, or alimony, is allowed to deduct those payments, while the payments are considered taxable income for the receiving ex-spouse.
On the other hand, child support is not taxable, meaning it is not a tax deduction for the paying parent, nor is it taxable income for the receiving parent.
Questions? Call an experienced family law attorney
As you can see, there are many tax-related consequences of divorce. That's why it's important to work with a divorce lawyer who fully understands all of the potential tax issues that can arise so that they can be planned for properly.