Divorce is new territory when it comes to filing taxes. There are many questions that need to be answered, including which spouse is claiming the kids as a deduction and whether or not spousal support is taxable. This subject might be of special interest to Texas readers because Texas is a community property state.
First of all, spousal support is indeed considered taxable income. Failing to save for this eventuality can lead to a nasty surprise when taxes are filed. It’s a good idea to take 20 percent out of each alimony payment and tuck it in an account so that it is available at tax time. It is also possible to make quarterly estimated tax payments to the IRS. It’s a voluntary process, but sometimes, it’s better to pay small amounts during the year. The IRS will often agree to payments on owed taxes, but the interest and penalties continue to be assessed, so it can be very difficult to stay ahead.
When it comes to the kids, make sure it’s clear in the divorce settlement who gets to take them as a deduction. It also may be wise, at least for the first year, to allow a professional to prepare the tax forms. After the newly divorced filer has the hang of how things work, it can be done at home with a tax preparation program.
Divorce can bring with it new and interesting challenges. If an individual believes that his or her marriage is ending, it may be helpful to consult a family law attorney. An attorney may be able to help both parties understand the new tax implications and perhaps negotiate a settlement that is fair to both spouses.
Source: Huffington Post, “Divorce Is Taxing in More Ways Than One“, Amy Koko, June 07, 2013