The tax season deadline is fast approaching and it is important for couples going through divorce to consider how their tax filing status will impact their financial circumstances. Most divorcing couples find it difficult to put their emotions aside and objectively choose the tax filing option that makes the most economic sense; however, it may not be in your best financial interest to file separately just because there is hostility between you and your soon-to-be ex-spouse. While it is imperative that you consult with a tax professional before choosing any filing option, here is some general information to think about:
- Filing Jointly vs. Separately
Taxpayers who are not divorced as of December 31 of the tax year only have two filing options: married filing jointly or married filing separately. In most cases, both spouses will reap more tax benefits if they file jointly. Married couples who file separately cannot take any education credits, which can be worth up to $2,500. They cannot receive a deduction for child care costs or deduct student loan interest. They also lose the deduction for passive loans on a rental property. A non-working spouse will lose the ability to take an IRA deduction.
- Head of Household
Many divorcing couples are forced to live under the same roof due to the high unemployment rate and the poor housing market. It has simply become unmanageable to financially support two separate homes. However, for those who have been living separately for at least six months and have the children living with them, they can file as head of household which puts them in a more favorable tax bracket. Spouses who file head of household do not lose the deductions they would if they filed separately as a married couple.
- Claiming Children as Deductions
A non-custodial parent cannot claim any of the children as exemptions without a signed release form from the custodial parent. Child tax exemptions are valued up to $3,700 for each child. It may be tough to avoid a battle over which parent gets the child exemptions but one alternative is to alternate years between the parents.
- Child Support & Alimony – Deductible Expenses or Taxable Income?
Child support is non-taxable income for the recipient and a non-deductible expense for the payer. Conversely, alimony is taxable income for the recipient and a tax deductible expense for the payer. There are alimony payment strategies available for divorcees to minimize the tax burden on both spouses. For example, a lump sum alimony payment can be non-taxable if you use a transfer of property. Other assets such as 401(k)’s, pensions and annuities can also be maneuvered to avoid taxes.
Contact a New Jersey Divorce Attorney Who Can Guide You through the Tax Discussions with Your Spouse
People going through divorce are not always willing to have rational discussions with their estranged spouse. Particularly, they may not choose to be reasonable when faced with a decision that could save their spouse money, even if that decision will save them money too. With a skilled New Jersey divorce attorney on their side, those discussions will go much smoother. Call the Haddonfield family law office of Adinolfi & Lieberman at 856-428-8334 or www.SJFamilyLawyers.com to speak with a New Jersey divorce attorney who will work with you and your tax professional to help you make money-saving decisions and to negotiate a favorable tax-filing situation with your estranged spouse.
Robert J. Adinolfi, Esquire, has been practicing law for 35 years, focusing his practice on family law. He is the founding and senior partner of the premier family law firm of Adinolfi & Lieberman, P.A., located in Haddonfield, Camden County, New Jersey. Mr. Adinolfi is Certified by the Supreme Court of New Jersey as a Matrimonial Law Attorney and has been a Fellow of the American Academy of Matrimonial Lawyers since 1989.
With the the IRS April deadline looming, divorcing couples have unique circumstances to consider when determining their filing status.