Dealing With Divorce Tax Issues in Time for the IRS Deadline
With the IRS tax filing deadline coming up later this month, it is time for recently divorced or soon-to-be divorcing spouses to become acquainted with the tax implications of divorce. While child support payments do not have any tax implications (that is, they are not tax-deductible for the paying parent, and they are not considered taxable income for the receiving parent), spousal maintenance (alimony) payments do. Whether you are paying or receiving spousal maintenance in Illinois, you need to account for it on your taxes.
Spousal Maintenance Is Tax Deductible for the Payor
If you are currently paying spousal maintenance to your ex-spouse, know that these support payments are tax deductible. As such, you may end up being required to pay less taxes than expected. Awareness of such positive tax implications should allow you to better plan your finances, whether you are budgeting in the short-term or saving and investing for the long-term.
Spousal Maintenance Is Taxable Income for the Recipient
If you are currently receiving spousal maintenance from your ex-spouse, know that the support payments constitute taxable income. Because of this, you may end up being required to pay more taxes than expected. Anticipating and accounting for this …
Preparing for the Tax-Related Consequences of Divorce
Just as the legal formalization of a marriage has tax-related consequences, so does its dissolution. If you have recently divorced or are in the process of divorce, it is important that you understand and prepare for the tax-related consequences of the decisions made regarding spousal support, the allocation of parental responsibility, and the division of the marriage’s assets. In the interest of avoiding serious financial hardships, it is imperative that these issues are dealt with as early as possible.
Child Support and Spousal Support Are Primary Tax-Related Issues Following Divorce
Currently, child support payments and spousal support payments are taxed differently. Spousal support (sometimes termed “maintenance” or “alimony”) is tax-deductible for the payor and is classified as taxable income for the recipient, while child support is not tax-deductible for the paying parent or taxable for the receiving parent. In some cases, it possible for divorced spouses to reach what is termed an “unallocated support arrangement” in which child support and spousal support are not differentiated into separated payments. Rather, they are combined into one fully tax-deductible/taxable payment – a beneficial simplification in instances, for example, in which one spouse earns the bulk of the income and the other spouse has …