Divorce And Taxes: Five Things You Need To Know
When you are ready for the rings to come off, taxes are probably low on your list of things to worry about. With that being said, financial impacts of divorce should be taken into consideration early on to prepare and prevent future issues that may impact your finances.
Whether this will be your first time filing single, or your first time filing taxes at all, there are a few things you should be aware of when it comes to owing Uncle Sam.
What is my tax filing status?
According to the IRS, there are 5 tax filing statuses.
- Single: Normally this status is for taxpayers who aren’t married, or who are divorced or legally separated under state law. Note, Texas does not recognize legal separation.
- Married Filing Jointly: If taxpayers are married, they can file a joint tax return. If a spouse died in during the tax year, the widowed spouse can often file a joint return for that year.
- Married Filing Separately: A married couple can choose to file two separate tax returns. This may benefit them if it results in less tax owed than if they file a joint tax return. Taxpayers may want to prepare their taxes both ways before they choose. They can also use this status if each wants to be responsible only for their own tax.
- Head of Household: In most cases, this status applies to a taxpayer who is not married, but there are some special rules. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person. Don’t choose this status by mistake. Be sure to check all the rules.
- Qualifying Widow(er) with Dependent Child: This status may apply to a taxpayer if their spouse died during 2014 or 2015 and they have a dependent child. Other conditions also apply.
Your federal income tax filing status is determined by your marital status on the last day of the tax year. If you are still married on December 31st, then you are considered married for the entire year. Likewise, if you are divorced on December 31st, then you are considered divorced for the entire year.
Keep in mind, whether you are filing married jointly or married separately, you may share in any responsibility for any taxes due during the marriage, along with related penalties and interest, and you may be required to share any tax return.
Who claims the children as dependents?
Because tax issues are federal law issues, your divorce decree may be silent on the issue. Under the IRS rules, the custodial parent, or that parent who has the child a majority of the time, may claim the child as a dependent.
“If your former spouse later claims the child as a dependent, and you are legally entitled to the dependent status, the IRS could make him, or her, prove their entitlement,” explains Danielle Bolong, Family Law attorney at The Carlson Law Firm.
Changes in how children are claimed on taxes
Beginning January 1, 2018, dependency exemptions have been repealed and eliminated. Instead, child tax credits are available for the parent who may claim the child as a dependent.
What is the difference between an exemption and a credit? A tax exemption directly reduces your taxable income. A credit reduces your tax liability.
The child tax credit is a credit that offsets the taxes you owe dollar for dollar and is available if you have a child younger than age 17 at the end of the year, and where that child lived with you for at least one-half of the year.
You may only claim the child tax credit if you are eligible to claim the child as a dependent. Accordingly, for a non-custodial parent to receive this benefit, the custodial parent must agree and assign that right (via Tax Form 8332) to the non-custodial parent in the years s/he will be permitted to claim a dependent child in their tax filing.
What other expenses can I deduct?
Medical expenses: If you continue to pay a child’s medical expenses once the divorce is final, you may be eligible to include the medical costs in your medical expense deduction even if your former spouse is the custodial parent and claims the child as a dependent.
Are alimony and child support deductible?
In the past, alimony payments were deductible to the obligor’s gross income and included as income by the recipient. Under the 2017 Bill, for divorces finalized in 2019 and thereafter, the obligor can no longer deduct the payment of spousal support, and the spouse receiving support does not need to claim the support as income.
The same is true for child support; the obligor does not receive a deduction to their income and the recipient does not pay income tax on money received as support.
Dani Bolong, family law attorney, recommends you always file your taxes early and if you have specific questions to consult a CPA or tax attorney.
How The Carlson Law Firm Can Help
There are many aspects involved in filing for divorce. Divorce is a process that is best accomplished with the assistance of a knowledgeable attorney from our firm. We understand that divorce is a difficult situation and can be complicated, which is why we are available to help.
Contact The Carlson Law Firm today for a free, no obligation case evaluation.
- Written by Jill Fowler