If you and your spouse filed for divorce in New Jersey last year, then you may have questions about how to handle your 2019 tax return. This is especially true for those who pay alimony or child support, share custody of dependents or have complex property division issues.
Keep these common tax problems in mind when filing your return after divorce.
Filing single or married
If your divorce was final for any part of the year, then you were single for the entire year in the eyes of the IRS. If your divorce was not yet final on December 31, 2019, you must file either as married or married filing separately. This is true even if you and your spouse did not live together at all in 2019.
Reporting and deducting alimony payments
When you receive spousal support payments, you must report these payments to the IRS as taxable income. If you pay alimony to a former spouse, you can deduct these payments from your taxable income. However, the amount and payment schedule must appear in your legal divorce agreement. Unlike spousal support, child support payments are not taxable or tax-deductible.
Often, parents who are no longer married disagree about who should claim the child on their tax return in exchange for credits and deductions. In general, the primary custodial parent or the parent who has more overnight time with the child can claim him or her as a dependent. However, you can decide among yourselves who gets to claim the exemption and can even make sure that this agreement appears in your divorce decree.
If the court orders the transfer of property from one spouse to the other during divorce, this transfer does not incur tax liability. You can avoid penalties associated with early retirement withdrawal by requesting a Qualified Domestic Relations Order from the court.
If you have not yet filed for divorce, careful planning can help with some of these issues. For example, you can ensure that you do not have to pay taxes on retirement withdrawals by working with the legal system to create an agreement.