Tackling your taxes after divorce can feel like navigating uncharted waters. It’s a new financial landscape, and you might be wondering where to begin. Don’t worry – we’ve got your back. Let’s break down what you need to know to file your first post-divorce tax return with confidence.
Understanding Your New Filing Status
Your marital status on December 31st determines your filing status for the entire year. If your divorce was finalized by year-end, you’ll file as either “Single” or “Head of Household” if you qualify. This change can significantly impact your tax bracket and available deductions.
Claiming Dependents
If you have children, deciding who claims them as dependents can be tricky. Generally, the custodial parent gets this benefit. However, you and your ex-spouse can agree to alternate years or split the children if you have more than one. Make sure this agreement is in writing to avoid future disputes.
Alimony and Child Support
Here’s where things get interesting:
- Alimony: For divorces finalized after 2018, alimony is no longer tax-deductible for the payer or taxable income for the recipient. If your divorce was finalized before 2019, old rules may still apply.
- Child Support: This is never taxable to the recipient or tax-deductible for the payer.
Dividing Assets
Transferring assets between spouses due to divorce usually isn’t taxable. However, be aware of potential tax implications when you eventually sell these assets. The cost basis of property often carries over, which could lead to a larger capital gain in the future.
Your Home Sweet Home
If you sold your home as part of the divorce, you might still be eligible for the capital gains exclusion. Even if you don’t meet the two-year ownership and use tests individually, you may qualify for a partial exclusion.
Retirement Accounts
Dividing retirement accounts requires careful handling:
- 401(k)s and pensions: These typically require a Qualified Domestic Relations Order (QDRO) to avoid early withdrawal penalties.
- IRAs: These can be transferred tax-free via a divorce decree.
Remember, any funds you keep will still be subject to regular distribution rules in the future.
Gathering Your Documents
Before you start filing, make sure you have:
- Your divorce decree
- Records of alimony paid or received
- Documentation of asset transfers
- A copy of your previous year’s tax return
These will help you accurately report your new financial situation.
What Next?
Your first post-divorce tax return sets the stage for your financial future. Consider these steps:
- Adjust your withholding at work to reflect your new tax situation
- Start tracking expenses if you’ll be itemizing deductions
- Plan for any tax payments you might owe to avoid penalties
Work With Us
At Purposeful Wealth Advisors, we understand that filing taxes post-divorce can be daunting. Our team is here to guide you through this process and help you make the most of your new financial situation.
Don’t let tax season add stress to your post-divorce life. Let’s work together to ensure you’re on solid financial footing. Give us a call to schedule a consultation. We’ll help you navigate this new chapter with confidence and set you up for future financial success.
Remember, filing your first post-divorce tax return isn’t just about compliance – it’s an opportunity to take control of your financial future. With the right guidance, you can turn this challenging task into a stepping stone towards financial independence and stability.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Purposeful Wealth Advisors and not necessarily those of Raymond James. While we are familiar
with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to renderadvice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
