When you’re getting divorced, it’s normal to focus on how your daily life will change. You may feel a sense of relief that you’re getting a fresh start. Or you might feel anxiety over not having full custody of your children. While those concerns and feelings are valid and important, they’re far from the only ways that divorcing your spouse will impact your life. Your divorce can and will impact your taxes. Here’s what your New Jersey divorce lawyer wants you to understand before tax season.
You’ll Need to Update Your Filing Status
When you and your spouse were married and filed taxes, you likely filed under a “married filing jointly” status. This typically lowers your tax bracket and may help you save money. But when you get divorced, you’ll typically need to change your filing status. Instead of filing as a couple, you’ll want to file as either “single” or “head of household.”
If you file under “single,” you may receive a lower standard deduction, which could end up costing you more in taxes. If you’re caring for a child or other individual, you may be able to file as “head of household” which could help you qualify for a higher standard deduction, potentially saving you money.
Consider Who Will Claim Kids as Dependents
If you have children, you and your spouse likely claimed them as dependents on your taxes. This significantly decreases your tax liability each year. But when you get divorced, only one parent can claim each child as a dependent each year. You’ll want to work this out with your spouse prior to tax season. If you have full custody of your children, you’ll want to claim them as dependents every year. If you and your spouse split custody, you could each claim one child as a dependent if you have several or alternate who claims them as a dependent each year.
It’s a good idea to include the details of this arrangement in your divorce terms to ensure that everyone is on the same page. Your New Jersey divorce attorney can help you reach a fair agreement with your spouse if needed.
Child Support and Alimony Payments Won’t Impact Your Taxes
If you receive child support and/or alimony payments from your spouse, there’s good news. Your alimony payments won’t count toward your taxable income. This means your tax liability won’t increase even if you’re awarded a large settlement. But if you’re paying either type of payment to your spouse, you won’t see any tax benefits. The payments you make aren’t tax deductible. That means you won’t be able to use them to lower your taxes.
Selling Your Home Could Make You Liable for Capital Gains Taxes
If you and your spouse own a home and you sell your family home and property as part of the divorce, you may have to pay the capital gains tax. This could increase your tax liability for the year by hundreds or thousands of dollars. But if you transfer the property to your spouse or come to another similar arrangement, you likely won’t be on the hook for the capital gains tax. If your spouse takes possession of the home and sells it later, the capital gains tax is theirs to bear.
Make Sure Your Divorce Benefits You as Much as Possible
Taxes can complicate even the easiest of divorces. While it’s always a good idea to work with a tax specialist to understand how your divorce will impact your financial situation, working with a New Jersey divorce lawyer who has your best interest in mind is truly essential. At Carvajal Law, our team will work to get you a settlement that benefits your situation both now and in the future. Contact us today to schedule a free consultation.