As if filing taxes wasn’t enough of a mental exercise, adding in all of the factors of a recent divorce is quite the curveball. We recommend discussing your particular circumstances with your tax professional, but get to know the basics below.
This may not be a cut and dry answer and it affects your taxes in an important way. If your divorce is not finalized by Dec 31st, you are technically married and must file under this status. If your divorce is finalized in court by this date, it’s as if you were unmarried for the whole year and must file as single. Likewise, if you’re legally separated by Dec 31st, you are considered a single filer.
If the IRS considers you married per above, you can still file jointly, which can be beneficial by taking the highest deduction and combining your incomes. However, there is a large caveat: if you are in the midst of divorce, and file jointly, you may not want to be responsible for the taxes that may result. If your soon to be ex-husband or wife does not pay their taxes, the IRS can and will attempt to collect them from you. Liability will also fall on your shoulders if they commit any tax-related offenses. The risk may not be worth the reward.
You’re not technically limited to filing as joint or separate if you’re still married or single if you’re divorced; you may have the option to file as head of household. You can claim a large standard deduction, but it also affects your eligibility for certain tax credits and you must meet strict requirements: you must have stopped living with your spouse before May 31st, you paid at least 51% of the cost of home maintenance, you have a dependent that you can claim, and you must file a separate return from your spouse.
Only one parent can claim children as dependents per year; if you have an even number of multiple children, each parent can claim half, and this practice is very common. If you only have one or an odd number, that’s where things get tricky. The IRS requires that one parent claim the dependents. The one that can claim them usually goes to the one that the child/children live with the most. In the small chance that it’s a 50/50 situation, the parent with the higher AGI gets to claim them. In addition to claiming dependents, child support paid is tax neutral; it cannot be deducted and it cannot be claimed as income.
If you’re paying alimony, you don’t have to pay taxes on this income, as it will be taxed as your ex-spouse’s taxable income. You will take an above-the-line deduction on the first page of your taxes, which means you don’t have to itemize to take the deduction. You can then assess whether it’s more beneficial to take the standard or itemized deduction. There are rules to taking the alimony deduction: alimony must be specifically mentioned in your divorce decree, they cannot be paid in property, you must provide their social security number, and you can’t claim the deduction if you file Form 1040NR, EZ, or A.
Your divorce may have cost you some hefty legal fees, depending on the financial circumstances and amicability of the divorce. Fortunately, you can deduct some of the costs associated with divorce, such as tax advice and any fees paid associated with earning income. You can legal and professional fees, but they are not above-the-line.
Now that you know the factors to think about when filing your taxes after divorce, contact your tax professional to coordinate the best way to approach filing that fits your particular needs. There are a lot of considerations to take, and a third party is essential to execute all of the administrative complexities.
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