What You Need to Know About Taxes After a California Divorce
The specifics of filing taxes after a California divorce can impact one’s tax refund. Here is what you need to know to stay on top of your taxes after a divorce in California.
During and after a divorce, taxes may be the last thing on a person’s mind. However, child support, alimony, and legal fees involving the divorce can all impact one’s next tax return.
Tips for Taxes After a Divorce
1. Determine your filing status
It is important to determine one’s filing status after the divorce is complete. If the divorce is completed on or before December 31st of a given year, an individual cannot file a joint tax return with their spouse. If the new year begins and the divorce still has not been finalized, the IRS will still recognize the couple as married, and therefore allow the couple to file jointly for the previous year. If a couple is still considered married by the IRS however wants to file separately, the individuals can choose the married filing separately status.
2. Update your W-4
If both spouses are employed, each will fill out a W-4 form. This form tells one’s employer how much to withhold from each paycheck. Joint filers need to split the W-4 withholdings, so if divorcing, a recalculation may be required.
3. Consider alimony and child support
Alimony payments finalized before January 1, 2019 are considered as an above-the-line deduction when filing taxes. Even if the divorce was finalized before that date, one should confirm with a tax professional if it is still possible to deduct alimony payments when calculating adjusted gross income. On the other hand, all alimony payments received from finalized divorces before January 1, 2019 qualify as income. As the spouse that received these payments, one will need to report them on one’s Form 1040. Child support payments are non-deductible, and if one receives child support payments, they do not have to report it as income.
Related: How Child Support Can Affect Your Taxes in California
4. Claiming children as dependents
It is important to understand which parent can claim children as dependents on their tax return. This will affect tax credits and filing status. The parent who claims their children as dependents is the custodial parent. The custodial parent is whom the child lives with for more nights during a given tax year. Divorce agreements will often name the custodial parent. If an individual is a custodial parent, they can claim their child/children as dependents on their tax return.
Related: Who Claims a Child on Taxes With 50/50 Custody in California
5. Deducting legal fees when filing taxes after a divorce
In general, one cannot deduct legal fees from filing a divorce. This includes the cost of counseling, litigation, or tax advice received during the divorce. As of 2017, legal expenses associated with generating income (seeking to receive property or alimony payments) also cannot be deducted.
Related: Can You Deduct Lawyer Fees for Divorce in California?
6. Consider mortgage and home equity deductions
Divorcing couples in California split their debts equally. It is important to consider any tax deductions or credits that might be available when assessing personal responsibility for debt during a divorce, including a mortgage and home equity.
7. Obtain a Qualified Domestic Relations Orders (QDROs) for retirement plans
To avoid tax consequences from splitting a retirement plan in a divorce, it may be useful for a couple to obtain a qualified domestic relations order. A QDRO is not necessary for an IRA or a non-investment account.
Related: Qualified Domestic Relations Orders (QDROs) in California
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If you have any more questions about taxes after a divorce in California, contact us. Get your free consultation with one of our experienced divorce attorneys!