Many people refer to January as the month of divorce, due to the high number of divorce filings that occur during this time. January is also the month when people receive their W-2 forms in the mail and start thinking about taxes.
Whether new divorcees file taxes singly or jointly depends on their official marital status on New Year’s Eve. If you are starting the new year newly single, use these tips to make filing easier.
Understand your filing status
Determine whether you qualify as single or head of household. If you have dependents and are covering more than half of the household expenses, you may qualify for the head of household status, which offers certain tax advantages.
Update your W-4 withholding
Adjust your W-4 withholding to ensure your employer withholds the right amount of taxes from your paycheck. After a divorce, your financial situation may change, affecting your tax liability. Completing a new W-4 form with accurate information prevents surprises come tax season.
If you have children, learn the rules for claiming dependents. Generally, the custodial parent is eligible to claim dependent-related tax benefits. However, if both parents agree, the noncustodial parent may claim certain credits. Ensure clear communication to avoid conflicts.
Distinguish between alimony and child support
Alimony and child support are not the same and they have different tax implications. Alimony is taxable income for the recipient and tax-deductible for the payer. In contrast, child support does not affect taxes. A new Indiana law will increase the amount of child support most people receive by 14% to 17% in 2024.
Capitalize on tax deductions
Explore available tax deductions to maximize your refund. Deductible expenses may include mortgage interest, property taxes and certain medical expenses. Keep meticulous records and gather documentation to support your deductions, ensuring compliance with tax regulations.
Review retirement accounts
After a divorce, reassess your retirement accounts. Update beneficiaries and understand the tax implications of withdrawals. If the court awards you a portion of your ex-spouse’s retirement assets, follow the necessary procedures to avoid penalties.
Understanding your tax obligations empowers you to navigate this aspect of post-divorce life with confidence.