4 Points You Should Know About Divorce and Taxes
Filing taxes is a reality that adults across the United States face each year. For many, it can feel like a painful task. However, filing taxes can be much more complicated and stressful when paired with a recent divorce or separation. Filing taxes on your own after divorce may prove to be more complicated than it was when you filed as a couple, but before you get started, there are a few things you should keep in mind. Here are 4 points you should know about divorce and taxes.
- Know your filing status. Even if you were married for most of the previous year, it's likely that you'll end up filing your taxes a single taxpayer. According to TurboTax, whatever your marital status was as of December 31 of the previous year determines your filing status for that year. So, even if you are officially divorced as of December 31, you will most likely end up filing on your own. However, you may be able to file as head of a household if you covered the majority of your household expenses and were living with a dependent last year. This could leave you with bigger deductions, but it's important to talk to a tax professional first to see if you can file this way.
- Figure out who can claim the children. This can be a tough point to figure out. If you spelled out exactly who gets to claim the children as tax exemptions in your divorce agreement, you'd just follow that plan. If you did not, or if you share parenting time and responsibilities, you'll have to determine how many days you each had your kids last year. The parent who had custody over the most days last year will likely get to claim the children. Even so, there is a way to claim children as exemptions even if they spent less than half of the year living with you. It requires your co-parent releasing their claim to the exemption by way of signing a Form 8332. There are specifications to when the use of this form is valid. You can learn more about the Form 8332 in this article.
- Consider the difference between child support and spousal support. These post-divorce payments serve two different purposes: child support is paid by one spouse to another for the purpose of financially supporting their child; spousal support (or "alimony") is paid by one spouse to another for the purpose of benefitting the receiving spouse after divorce. Spousal support is deductible to the person payment and taxable to the person receiving it. In contrast, child support is not deductible nor taxable. These will be substantial points to keep in mind for any divorcing spouse who finds them self making or receiving these payments.
- Get help from a divorce financial or tax professional. For those who are filing their taxes after divorce for the first time, it may be best to get some professional assistance this year. A Certified Divorce Financial Analyst, or CDFA, can be a great help to you in attaining financial stability after divorce as well as give you guidance during tax season. A tax professional can assist you in the process of knowing which forms you need to complete and filing once you're ready to go. While there may be a cost involved with working with a tax professional, doing so may end up saving you loads of cash at the end of the day.
Divorce and taxes are two terms that make many people cringe whenever they think about either, but they are two realities for so many adults. Understanding the right points involved with these two issues and getting the help you need when you don't understand something is a major factor towards succeeding with both divorce and taxes.