Finalizing a divorce in the middle of a tax year can lead to some questions that will need answers during tax season. There are several issues to think about that may arise.
One example would be mortgage interest. It can be taken as a deduction on a tax return, but which party gets to claim it? Or how about the property tax payment? That is a deduction as well. Others to think about may be interest accrued on a joint account, claiming children as dependents, or deducting energy efficient home maintenance costs.
An individual tax filing status is determined on the last day of a tax year. Therefore, if you were unmarried on December 31st, your tax filing status for that year would be single.
It is important that a divorce settlement agreement or judgment be as specific and detailed as possible regarding division of assets, especially those that can be claimed on tax returns. When these matters are not decided on prior to tax season, inconsistent returns are often filed with the Internal Revenue Service. This can lead to one or both parties finding themselves the subject of a tax audit. Further, it can complicate future tax returns for years to come.
If a business owner is getting divorced, he or she should consult with an attorney who is experienced in handling such cases for business owners and professionals. There are more complex issues to be dealt with and agreed upon in these divorces. A wrong move could cost a lot of money in the future.
Source: Stout Advisory, “The Taxing Side of Divorce: Taxes in the Year of Divorce,” Mary Ade, accessed Feb. 7, 2018