Tax season is complicated enough for just one person. Reporting your income correctly and making sure you fill out the right forms can be hard enough without any extra factors. Getting married and having children adds additional complications. However, there’s no marital status that leads to a more complex tax situation than that of a divorced parent.
Once you separate from your ex, you need to confront a variety of new financial considerations and potential problems. Here are some of the ways that getting a separation can make your tax season harder to handle.
Head of Household Status and Taxes
The first effect of a divorce on your taxes is that it automatically ends your eligibility to file as married. Your marital status for a tax year depends on whether you were married on December 31st of that year. If your divorce is finalized on or before New Year’s Eve, then you will need to file as single or as a head of household for that year.
Head of household is a unique status that applies to certain adults with dependents. The most common way to qualify as a head of household is to have primary custody of one of your children. This filing status offers single parents with primary custody some tax breaks, as it’s assumed that they have higher expenses than a single person without a child.
Only parents whose children live with them more than half the year are eligible to file as heads of household. If you have custody of your children but they don’t live with you for at least half the year, then you will likely just file as single and not receive those tax breaks.
Oregon Spousal Support and Taxes
After your filing status, the next effect you will likely face is the impact of spousal support. If you and your ex had significantly different incomes, it’s likely one of you will be ordered to pay spousal support to the other.
Spousal support, also known as alimony, is a complicated part of your taxes. After all, you’re no longer filing your taxes with your former partner, but one of you is paying to support the other. The way the federal government handles this has recently changed with the 2017 Tax Cuts and Jobs Act.
Before this Act went into effect, the IRS considered alimony payments to be a deductible expense for the paying person. Meanwhile, the funds were considered reportable income for the recipient. However, the Act essentially reversed this decision for new alimony agreements.
As of January 1st, 2019, any new spousal support orders are no longer deductible for the paying person. Meanwhile, the recipient has no need to report the payments as income. This removes the tax burden for those funds from the recipient and leads to a significantly higher tax penalty for the payer.
This change has made alimony payments even more stressful for the paying partner. They lose both the order monthly payments and benefits of writing those funds off. On the other hand, lower-earning partners may find this change valuable, because they get the funds and no additional financial burden.
Oregon Child Support and Taxes
If you have kids, you’ll have to consider the effects of child support and child custody on your taxes. As a married couple, having children can provide you with tax credits and save you money. It gets more complicated once you’re separated, though.
In Oregon, it’s rare for both parents to share custody. If either person objects to sharing custody, then the court is legally obligated to award full custody to one of the two parents. As a result, many sets of parents will be subject to child support orders.
Supporting your children is one of the biggest responsibilities you have, according to US law. Stayin up to date on child support payments is something the IRS takes very seriously. That means that if you owe your co-parent child support, your tax return can be garnished to pay off your debt.
Another thing to keep in mind is that child support payments are not tax-deductible. These payments are intended to cover the amount you would spend on your child if you had custody of them. Since the money people spend on their children while married is not tax deductible, neither are court-ordered payments.
Special Considerations for 2020’s Taxes
If your normal tax season concerns weren’t enough, the pandemic has made the 2020 tax year that much more complex. There are three special considerations to keep in mind before filing your 2020 tax returns.
First, because of the national circumstances, the IRS has extended the filing deadline for 2020 until May 17th of 2021. If you’re concerned about your taxes, you have another month to get them in before they’re overdue.
Second, there have been several stimulus payments sent out to the majority of the adult US population. You may not have been eligible for these payments based on your marital income. However, if your divorce was finalized on or before December 31st of 2020, then filing your 2020 taxes may make you eligible to receive these payments in a lump sum.
Third, if you did receive your stimulus checks, they are not taxable income. You do not need to list the funds you received on your tax returns, regardless of your marital status. If you have any questions about filing your taxes, always consult with a certified tax preparer.
Take Control of Your Finances in Advance
There are innumerable ways that divorce can complicate your financial situation. Everything from alimony to child custody can make it harder to file your taxes accurately. If you’re tired of how much harder support orders have made your life, don’t hesitate to reach out for help.
Whether you bear an unfair financial burden or you need more support to make ends meet, you can petition to have your divorce orders changed. The sooner you start the process, the sooner you can reduce the effects of your divorce on your taxes. Get your free consultation today to learn how you can change your situation.