How Marriage and Divorce Affects Your Tax Obligation

marriage divorce and taxesGetting married is a special occasion, and most couples take time to plan their perfect wedding day. However, having a blissful day of matrimony has many implications beyond living arrangements, new family members and the new day to day life you and your partner will lead.

For example, how you file your taxes will change and not knowing what deductions you are allowed can negatively affect your household income. Having children or even getting a divorce are additional factors that can impact tax filing.

Here are some helpful tips on filing taxes for married, divorcing and couples with children.

Know Your Filing Status

Filing status is the primary change for marrying and divorcing couples, and it determines the type of tax return each individual will use. Depending on filing status, certain deductions and credits can be attributed to your obligation.

Single – this is the easiest filing status to measure. Individuals that have never married will file as single. The marital status on the last day of the tax year is partly the determining factor. There are exceptions. Certain requirements, like qualifying widow(er) or head of household can be used to determine single status.

Married  this is a complicated status. Only marriages accepted under federal tax law are accepted. Civil unions, domestic partnerships and other categories are unqualified.

For qualifying persons there are two filing scenarios: Filing separate or jointly.

  • Filing Jointly – include combined household income, exemptions, deductions and credits for both persons, even if one does not receive deductions or income.
  • Filing Separately – if reporting separate returns, each person should report individual income, exemptions, deductions and credits.

*Same Sex Marriage – viewed under same category of married man and woman.

Why Married Couples File Separate Tax Returns

Typically, filing jointly is the most advantageous situation for married couples. There are instances that filing separately can save a married couple on their taxes. Medical expenses are a common example. The Federal IRS allows a portion of medical expenses to be deducted, after meeting the 10% mark of adjusted gross income. What this means, is that if combined household income is high, then medical expenses must exceed the 10% mark in order to be deducted. Filing separately lowers this gross income for the individual with the medical expenses, thus allowing deduction at a lower income rate.

Filing Taxes After A Divorce

Filing after divorce is additionally complicated. It is the responsibility of the individual and divorcing spouse to ensure all individual and joint tax, interest and penalties are covered for a tax year prior to finalizing the divorce. Divorcing couples must finalize their divorce prior to the last day of the calendar year to eliminate responsibility for the upcoming year.

Do You Receive Alimony or Child Support?

Depending on your situation, alimony and child support payments will be considered. The recipient of alimony must claim on their tax return. Child support does not count toward income.

Update Your Withholding’s

Receiving alimony increases your income. Make sure to adjust your salary withholding’s to account for the increased tax liability. Since the alimony payments are not taxed as part of your work income, taxes will be owed at tax time.

Pay Estimated Tax Payments

Avoid paying owed alimony taxes in a lump sum by paying estimated taxes throughout the year. Occasionally, making adjustments to wage withholding will not be sufficient to cover tax obligation. Paying throughout the year is a good way to cover your tax costs, without being required to cover a large amount in a single payment.

How Children Can Affect Taxes

Whether in divorce or marriage, having children is a major implication for taxes. Take full advantage of the deductions and credit due to you, however, if you are divorced, it is crucial for both parties to understand who is eligible to claim the children for their taxes.

Who Claims as a Dependent

If your divorce agreement does not list which parent can claim children for exemptions, then typically the parent awarded sole custody or the majority of custody is also awarded the exemption.

Be Financially Prepared

Getting married is a big prospect in life, and for that reason, being financially prepared takes more than just having enough to cover the cost of a wedding. Knowing how marriage will effect your taxes is a good step to ensuring a long life of financial happiness along with your spouse. But, if your marriage is ending, failing to know what your tax situation will be during the divorce and after is a recipe for trouble. Be informed of how your new life will impact your income to eliminate additional stresses.

Contact an Experienced Raleigh CPA for Tax Support

Although the main focus for the accounting team of C.E. Thorn, CPA, PLLC is for local small business support, we understand the tax needs of individuals and couples as well. Speak to a Raleigh accountant today to resolve any questions or concerns you may have about your taxes by calling 919-420-0092 or by completing the online contact form.