Divorced, Separated, Married or Widowed This Year? Unpleasant Surprises May Await You at Tax Time

Divorced, Separated, Married or Widowed This Year? Unpleasant Surprises May Await You at Tax Time

Listen up, taxpayers! Life events like marriage, divorce, separation, or even the death of a spouse can blindside you with a change in your filing status. I know it’s a whirlwind of emotions, and the last thing on your mind is taxes. But guess what? Those tax ramifications are real and can ruin your day if you don’t pay attention. So, let’s dive into the major tax complications for each situation.

Let’s start with the drama of separation. It’s the messiest life event, trust me! You can either file jointly (yep, you’re still technically married) or file separately. But brace yourself, because deciding which way to go is like walking through a minefield of restrictions.

Oh, and let’s not forget the fabulous world of filing statuses! If you and your estranged partner have been living apart for the last six months of the year, one of you (or both, if you’re feeling bold) can file as the head of household. But hey, you better have paid more than half the cost of maintaining a household for that precious dependent child, stepchild, or foster child. If one of you doesn’t qualify for head of household status, well, tough luck, darling! You’ll have to file separately as a married person. And trust me, the IRS has put up so many roadblocks to keep clever couples from taking advantage of the system by filing separately.

Now, let’s talk about the never-ending battle of claiming the children. It’s like a tug of war between separated spouses, and things can get downright ugly. Whoever has custody for the majority of the year gets to claim the child as a dependent. But here’s the catch: the IRS couldn’t care less about the actual hours spent; they go by the number of nights the child spent at each parent’s place. Yeah, it’s as complicated as it sounds.

Oh, and we can’t forget about alimony! It’s those lovely payments made from one ex-spouse to the other for support. Prior to tax reform, the recipient included it as income, while the payer got to deduct it. But things have changed, darling. If your divorce agreement was entered into after December 31, 2018, or if you modified a pre-existing agreement after that date, alimony is now non-taxable for the recipient. And guess what? That means it can’t be counted as earned income for IRA contributions. Sucks, doesn’t it?

Let’s not overlook the nine lucky states that are community property states. If you’re in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, get ready for some fun! According to their laws, you have to split that community income right down the middle. Your individual income? Who cares about that, honey?

Now, let’s fast forward to the glorious land of divorce. Once that ink dries on the papers, tax issues become crystal clear. Each ex-spouse files based on their own income and the terms of the divorce decree. It’s all about your own money, honey!

Filing status is a whole new ball game. If you’re officially divorced by the end of the year, say goodbye to joint returns and hello to filing as a single or head of household. But don’t worry, you can’t just declare yourself a head of household without paying more than half the cost of maintaining a household for that dependent child or relative. Rules, rules, rules!

And let’s not forget the ongoing custody battle. The custodial parent is the lucky one who gets to claim the child’s dependency and all those sweet tax benefits. But hey, if the custodial parent feels generous or just doesn’t want the headache, they can release the dependency to the other parent. Just make sure it’s in writing! It’s like a game of back-and-forth that can last for years, but hey, who said taxes were easy?

Oh, and all you lovebirds who recently tied the knot, congratulations! Now get ready for the magical merging of incomes and deductions. Married life means you can file as a happy couple, combining everything, or as married individuals. Joint returns usually bring the best tax outcome, but hey, sometimes you need to go your separate ways. Just beware, the married filing separate status is a labyrinth of restrictions designed to keep you from playing the system. Look before you leap, my friends!

And here’s a twist: when your combined incomes reach new heights, the tax gods might throw some extra obstacles your way. They just love to limit those benefits for higher-income folks. So, get ready for some not-so-pleasant surprises.

Oh, and don’t even get me started on the Affordable Care Act. If you and your sweetheart had government marketplace health insurance with a premium supplement, watch out! Your combined income might kick you out of eligibility, and guess what? You’ll have to pay it back. Fun, right?

Lastly, let’s talk about the unfortunate event of losing a spouse. When your better half passes away, you can still file a joint return for that year. And guess what? You get to keep using those joint tax rates for up to two more years, as long as you haven’t remarried and have a dependent child living with you. It’s a tiny silver lining in a time of grief and financial stress.

So, if any of these situations ring a bell, make sure to reach out for all the nitty-gritty details that might apply to your specific set of circumstances.