Chicago Tax Attorney

Divorce or Separation May Affect Taxes

From the Desk of Michael T. McCormick

Divorce or Separation May Affect Taxes

Taxpayers who are divorcing or recently divorced need to consider the impact divorce or separation may have on their taxes. Alimony payments paid under a divorce or separation instrument are deductible by the payer, and the recipient must include it as income. Name or address changes and individual retirement account deductions are other items to consider.

If you are in this situation consider these key tax tips:

• Child Support Payments are not Alimony. Child support payments are neither deductible nor taxable income for either parent.

• Deduct Alimony Paid. Taxpayers can deduct alimony paid under a divorce or separation decree, whether or not they itemize deductions on their return. Taxpayers must file Form 1040; enter the amount of alimony paid and their former spouse’s Social Security number or Individual Taxpayer Identification Number.

• Report Alimony Received. Taxpayers should report alimony received as income on Form 1040 in the year received. Alimony is not subject to tax withholding so it may be necessary to increase the tax paid during the year to avoid a penalty. To do this, it is possible to make estimated payments or increase the amount of tax withheld from wages.

• IRA Considerations. A final decree of divorce or separate maintenance agreement by the end of the tax year means taxpayers cannot deduct contributions made to a former spouse’s traditional IRA. They can only deduct contributions made to their own traditional IRA.

• Report Name Changes. Notify the Social Security Administration (SSA) of any name changes after a divorce. The name on a tax return must match SSA records. A name mismatch can cause problems in the processing of a return and may delay a refund.

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