 Internal Deputy Service IRS tax news, some tax considerations for people who are separating or divorcing. Number one, make sure you file the tax return first so you can claim all the kids. Number two, make sure you can still deduct the mortgage interest and property taxes. Number three, the IRS does not generally allow a divorce deduction, even though it was clearly an ordinary and necessary business expense. Number four, remember that at least the dog still loves you, even though you'll never be allowed to see it again. That last one not really being tax related, but I thought I'd throw it in there. Anyways, those are just a couple jokingly ones here. We're going to go to the IRS items down below IRS tax tip 2022-91 June 15, 2022. When people go through a legal separation or divorce, the change in their relationship status also affects their tax situation. So obviously just like with every other kind of life situation, what's the first thing you do before you make a decision? You look at the tax consequences. Should I get married? We do a tax projection and then whatever the results say, that's what we do. Divorce, you know, same kind of thing. Should we move? That's it. I'm just joking here. That's probably not the best way to go, but there will be tax considerations typically for these kinds of things. So the IRS considers a couple married for filing purposes until they get a final decree or divorce or separate maintenance. So that kind of timeline in terms of when someone is divorced can get into some gray area. In other words, if you're talking about a separation, then it can be a little bit confusing as well as or to the term as whether someone is legally separated or basically divorced or not. Obviously if you go through a full divorce, then it's a little bit more clear cut. So if you're in that kind of gray area, you might have to do a little bit more research, possibly even go into states, the state information for that separation calculation or definition update withholdings. When someone becomes divorced or separated, they usually need to file a new form W4 with their employer to claim the proper withholdings. So that means that because you're not married and we have tax consequences due to married filing jointly, having separate progressive tax tables, as well as not having two incomes. So your income is going to basically be different as well. So that would mean that you got to file a new W4, which you could do with the tax withholding estimator to get a new estimate. Remember as you file a W4, you go to your employer asking them for the information about how to do it, but they're probably not going to give you tax information because they don't want to get sued. What you got to do is do your own kind of calculation on it, possibly with the use of the tax withholding estimator, which is a good tool here, basically becoming more of like tax software to help you do a tax projection to help you fill out the W4. So if they receive alimony, they may have to make estimated tax payments. The tax withholding estimator tool on irs.gov can help people figure out if they're withholding the correct amount. So obviously if there's going to be alimony involved, one spouse paying the other spouse, you want to think about whether or not there be any tax consequences. And there have been changes to the laws with regards to alimony and child support. So those are kind of interesting areas that used to be that basically the child support was something that you didn't get to really deduct if you're the one paying it, but you didn't also have to include it as income if you're the one receiving it. And on the alimony, the alimony was the one where if the person receiving it, they would have had to claim it as income, and the person that paid it possibly getting a deduction. They basically changed that law. So it's going through some adjustments. So it kind of depends on when the agreement came into play, and it might still be necessary to kind of make that distinction within the divorce arrangements, because you can imagine the law changing again in the future, making this distinction between kind of alimony and child support with regards to tax consequences for them. Also note that if you have a state income tax, they also might make different distinctions. They might be using like the old law, for example, and not the change law. So it's useful to make the divorce any kind of agreement, of course, that you're making with anyone. You'd like to make it as clear cut as possible. So everybody knows what's going on, and you got to take into consideration the taxes when you're doing that as well, because there could be tax implications now, and there possibly could be changes to the tax law, given the way things are going in the future. So understand the tax treatment of alimony and separate maintenance amounts paid to a spouse or a former spouse under a forced decree, a separate maintenance decree or a written separation agreement, maybe alimony or separate maintenance payments for federal tax purposes. When alimony or separate maintenance payments are deductible by the payer spouse and the recipient spouse must include in income. So that's going to be the question. How are we formatting the payments? Does that formatting mean that there's going to be tax consequences deductible for the one paying income to the one receiving, however, individuals can't deduct alimony or separate maintenance payments made under a divorce or separation agreement executed after 2018 or executed before 2019, but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification. So you got to know what the new law is. I kind of like that they remove the tax consequences between the kinds of payments because I would think usually I get to the opinion that if everybody had all the information they would make their agreement whatever is best for the two individuals and whenever you put the tax considerations in you say something's deductible or something you're not really, you may not be actually helping the one that's getting the deduction, for example, because all that's going to do is increase the amount of alimony you're going to pay because if everybody has all the information then it's going to alter the amount of the payments and obviously if something's going to be taxable then it's going to be an impact to the government's going to have the tax on it although there's a deduction and income side of things. So in any case you can think about it whatever but just make sure you have the full picture in mind of what's going on tax related when you're making the arrangement. Alimony and separate maintenance payments received under such an agreement are not included in the income the recipient's spouse. So determine who will claim a dependent child if filing a separate return. Now unfortunately in separations the child can have significant financial impacts with regards to taxes and possibly other kind of benefit programs and things like that so that means the child becomes something that would be beneficial to claim and what not especially if you just got the one child because that would mean that if one person was able to claim them they can move from filing status of single up to head of household which could have a significant impact plus there's a deduction plus and now they're giving out these child tax credit was a lot bigger last year so we'll see what they do basically in 2022 that you'll remember they give out the advance payments and stuff like that. So in any case it becomes important to put in the agreement I was joking upfront that you're going to just file first and try to claim the child because that kind of stuff happens you don't really want to do that you want to have it in the divorce agreement in terms of who's going to be claiming the child because there are situations the iris will not let you both claim the same child and whoever files first then the iris will have it on record and that's going to mess everything up if the other one tries to claim it and have problems with it but you want to have it if there's a joint custody situation then you're going to have to think about well what does that mean for taxes because that could mean that the child could possibly be claimed by either spouse in any given year does that mean you're going to be claiming the child every other year on one return or the other or what would be the way to go and make sure you have that laid out and thought about upfront. So generally the parent with the custody of their child can claim the child tax credit so usually it's a custody thing first right so if the child's living all the time with one parent you would think it'd be going there but oftentimes you have a joint custody situation so if parents split custody 50-50 and aren't filing a joint return they'll have to decide which parent gets to claim the child so make sure to decide that upfront and not make it become a problem there are tiebreaker rules there's a link to that here if the parents can't agree child support payments aren't deductible by the payer and aren't taxable to the payee report property transfer if needed usually there is no recognized gain or loss on the transfer property between spouses or between former spouses if the transfer is because of divorce so in other words you know if within when you got married theoretically all the all the property is joint at that point in time right so that would mean that at divorce one person may have walked away from the situation with more property but but then they originally had you know maybe they didn't grow if it grew together then whatever but you know then but if that happens it's it's it's a separation of what was once a taxable one entity and so you would think there wouldn't be any tax consequences wouldn't be like income to the one individual even if they even if they you know got more than they went in or whatever because it's not an income it's it's basically a one tax person separating and having an allocation due to divorce not a taxable event typically people may have to report the transfer on a gift tax return so so if you're gifting something then then you got the gift tax that you're gonna basically have to deal with which would kind of it's kind of tied together with your estate tax consider filing status so divorcing couples are still married as of the end of the year and are treated as married for the year and must determine their filing status so one more time divorcing couples are still who are still married as of the end of the year are treated as married for the year and must determine their filing status so then the question is when did the divorce take place are you in the process of separating but haven't separated by the end of the year then you got to deal with your filing status which you would think if you're still married would be between married filing joint married filing separate married filing separate is often not as advantageous most of the time as married filing joint when you're thinking about a full you know tax return process so the what is my filing status tool there's a link to that here it's on irs.gov can help people figure out what status makes sense for their situation so sometimes most of the time the status is pretty straightforward but sometimes you're in like that gray area possibly because you have a dependent or you don't know if you're divorced or not you're separated but not divorced what are the regulations for separation and so on so here are the statuses separating or receive or recently divorced people should consider married filing joint on a joint return married people report their combined income and deduct their combined allowable expenses for many couples filing jointly results in a lower tax than filing separately married filing separately as spouses file separate tax returns to each report only their own income deductions and credits on their individual return each spouse is responsible for only the tax due on their own return people should consider whether filing separately or jointly is better for them so again you might say well I'm I'm no longer I'm trying to separate here so I'm going to try to file married filing separately you might want to do that but if you're still actually technically married then then it might you might not get as much of a tax benefit to do that you also have some issues with community property states versus non-community property states and the reporting of it and so on so so you want to consider that then head of household some separated people may be eligible to file as head of household if all these apply their spouse didn't live in their home for the last six months of the year so now we're getting into what does it mean to be separate for example they paid more than half the cost of keeping up their home for the year their home was the main home of their dependent child for more than half the year so if you were clearly divorced for example or if you just had a dependent child and you were never married or something like that then instead of single the worst filing status for taxation you might be able to bump up to head of household which is typically which is better with the with the tax rates this the standard deduction is typically better and of course you got the kid which has a deduction for the kid you get a kid deduction and so single what's the what's the final decree or divorce or separate maintenance is issued a taxpayer will file a single single starting for the year it was issued unless they are eligible to file as head of household or they remarry at the end of the year so if you separate then you're going to be going to to single unless you have a dependent which is the worst filing status for tax purposes so so remember if you're if you're married then you can't really jump down to head of household or single unless you're legally filed as separated in some way then you're kind of stuck in here to married or married filing separately unless you can basically be separated or file head of household you know in a in a strange you know an unusual circumstance because you're kind of like separated and then if you're if you're divorced or you're separated then the question would be okay well typically are you going to be head of household or single and that will often depend upon whether you have at least one dependent that that you can claim and that's why that one if you have one child that's kind of caught in the middle of this that child becomes more valuable from a tax standpoint if uh if the filing status would change from single to head of household for claiming them along with the you know the deductions or credits for the child tax credits and so on any case more information can be found at the publications below we got publication 504 divorce or separated individuals topic number 452 alimony and separate maintenance there's links to that stuff here there'll be a link to this in the description