If you have been divorced, you know that there are a lot more things to think about than heartache, pointing fingers, and whose is whose when you divide your assets. You have to consider (and reconsider) all kinds of issues such as legal status, paperwork, ownership, and yes, taxes as well.
What is included in your taxable income? If you have been divorced, your financial situation has probably changed. You may receive or pay alimony and/or child support. If you do, do you know how that will affect your tax return this year?
If you receive alimony payments, they are considered a part of your total income and therefore taxable. However, federal income tax is not taken out of your alimony payments initially, so you may need to adjust taxes taken from your other income sources to avoid a tax debt surprise on your return. It is important that you include your alimony as taxable income because the IRS imposes a penalty for not filing it correctly. Furthermore, filing your taxes becomes more complicated when you receive alimony; you have to use the long form, IRS Form 1040 and report your alimony income on line 11.
If you make alimony payments, those payments are not a complete loss – they are tax deductible provided that you have your ex-spouse’s Social Security number for verification. If you do no have this information, the IRS may not allow this deduction or impose a penalty. To claim this deduction, you will use IRS Form 1040 and subtract it from your income on line 31.
Some divorce decrees call for both alimony and child support and state the specific amount for each. In these cases, child support is not considered income and is therefore not taxable. The party paying cannot claim the child support as tax deductible, either.
Divorce can be a distressing, complicated, and messy but with these tax questions explained, you can at least slowly start to adjust to the tremendous changes with a little less hassle.