When you go through a divorce in New York, you make many decisions involving your property and finances.
With everything on your mind, it is easy to overlook how a divorce could impact your taxes. It is important to examine the tax implications of each divorce decision you make, to avoid a negative outcome.
Filing your taxes
Your first question is likely to be how to file your taxes. If you are already divorced, you file separately, but what if you are still married but going through a divorce?
You have two choices. You can choose to still file a joint tax return, or you can file as married filing separately.
When you file as married filing separately, you report only your own income, deductions and expenses. It is usually best to review the likely results for each option and choose which one gives you a better outcome.
Fortunately, there are typically no tax implications for any property transfers if they are part of a divorce.
The important thing to remember here is that your divorce settlement agreement should clearly detail the property transfers that take place, so if you are questioned by the Internal Revenue Service (IRS) about the transfer, you can show them your divorce agreement.
Your divorce agreement could involve spousal support or post-divorce maintenance payments. You can potentially deduct these payments if you are the one paying them; if you are receiving them, you might have to report them as income.
Child custody is one of the biggest components of New York divorces that involves children. Because your mind is likely focused on your children, you may not realize that custody could affect your taxes as well.
The parent with primary custody usually has the right to claim any children on their tax returns. If you and your ex-spouse share custody, you can alternate years that you claim. If you have more than one child, agree that each parent claims a certain number of children.
As you negotiate the terms of your divorce, talk with your divorce attorney about the tax consequences of each term. This can help you ensure you are making the wisest decisions.