Today's earlier post was all about marriage and taxes. Unfortunately, far too many marriages end in divorce and when this happens, tax issues are relevant once again.
The best advice is to understand the divorce decree and its terms, especially key components that could complicate a tax return, such as:
- Alimony is taxable and deductible. The person who provides alimony can claim the payments as a deduction, while the person who receives it can avoid a large end-of-year tax bill by paying estimated taxes during the year. Unlike alimony, child support is not deductible or taxable.' '' '
- Who claims children? The parent who has custody of a child usually can claim the child as a dependent. However, with the custodial parent’s consent, the parent without custody can claim the child. (The custodial parent may still be able to claim certain tax benefits related to the child, including head of household filing status, the Earned Income Tax Credit, and the child-care credit.)
- Who is a head of household? There are several factors for determining the head of a household. A few include being considered ‘unmarried’ on the last day of the year, having children or other dependents who live with you, and paying more than half the cost of providing a home for dependents. Taxpayers should consult with a tax professional to determine if they qualify for head of household status.
- Divorce, annulment and legal separation are considered the same by the IRS for tax purposes. The way a tax return is affected by the situation depends on how the decree is worded, and in cases where state and federal law differ, the IRS will side with the federal government.
Source: BusinessWire.com.
Source for Post: Oklahoma Family Law Blog.
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