Taxes are one thing that remain certain no matter what you’re doing in life. They are largely unavoidable and have an impact on how you live.
When you divorce, you will need to consider how your taxes may be impacted. If you are asking for child support or alimony, both of those things may have a significant influence on your taxes for that year.
How does spousal support or alimony impact your taxes?
Since the Tax Cuts and Jobs Act of 2017, alimony payments have been made nondeductible. That means that the payer cannot write off alimony payments and save money on their taxes. The recipient doesn’t need to claim those payments as income, either. Essentially, the person earning the money has to pay taxes on it. The recipient doesn’t have to claim the money as income.
That change was significant because it means that people now have to determine if they can afford to pay out as much in support as they did before. Those seeking it may find that their ex-spouses are less willing to negotiate over support and may want to resolve any support obligations with a one-off payment to prevent tax issues in the future.
Children and taxes: Who gets the credit?
Only one person is able to claim your children for the purposes of claiming child tax credits. Usually, the parent who claims that money is the one who is with the children more often. However, you may set up a different arrangement and switch off from year to year or allow the parent earning less to claim the credit to get cash back from the government or reduce their tax bill. Alternatively, it sometimes makes sense to allow the higher-earning parent to use those credits to reduce their tax bill and save more money to spend on their children.
There are several tax issues to consider when you’re going through a divorce, these included. This is something to talk about with your spouse and your attorney as you determine what a fair settlement will look like now and in the future.