How Your Divorce May Affect Your Tax Return
After the divorce papers are signed and the rings come off, filing taxes are probably low on your list of things to worry about. However, a divorce may carry a serious financial impact on the separating couple and their children. As a result, verifying your tax situation should be higher on your list of priorities.
Whether this is the first time filing as a newly single adult or your first time filing at all, there are a few things you should know when it comes down to owing Uncle Sam.
Determining Your Filing Status
The first step in filing taxes after a divorce is determining your tax filing status. The filing status is determined by the last day of the year in which you are filing your taxes. Example, if you were still married by December 31 the IRS will consider you married for the entire year. On the other hand, if you are divorced by December 31 the IRS considers you divorced for the entire year.
Claiming The Children As Dependents After Divorce
The IRS will only allow one parent to claim the child as a dependent. Frequently, claiming a child on taxes can be a quarrelsome topic for divorced parents. For this reason, it is important to establish the custodial parent or come to a mutual agreement before tax season.
If the non-custodial parent claims the child on their taxes the IRS may make them prove their entitlement.
Filing as Head of Household
There are major benefits associated with filing as head of household after a divorce, as opposed to filing as single. Head of household status filing carries a greater standard deduction. This may make the filer eligible for valuable tax credits and a lower tax rate.
Information to keep In mind while fling as head of household:
- The divorce must have been finalized as of December 31 of the year you’re filing the tax return.
- You paid at least half of the cost of keeping up your home.
- A qualifying person lived with you at least half the year.*
*A qualifying person example: children attending school away from home, married children you claim as dependents, qualifying parents you support and claim as dependents even if they don’t live with you.
Qualifying Children After A Divorce
Most commonly, the child is the qualifying child of the custodial parent. It is important to note that you and your former spouse may not both file as head of household on shared support for the same child or children. Divorce decrees typically outline tax arrangements. If the decree does not specify a tax agreement and the children spend equal parts time with both parents, the parent with the higher gross income can claim the child for purposes of filing as head of household.
When a Noncustodial Parent Can Claim A Qualifying Child
The Child Tax Credit
The child tax credit is a credit that offsets the taxes you owe dollar for dollar. This credit is available for those that have a child younger than 17 that lived with them for half the year. You may only claim the child tax credit if you are eligible to claim the child as a dependent.
Other Child-Related Expenses to Lower Your Tax Bill
If the non-custodial parent still pays for the child’s medical expenses after the divorce has been finalized, they may be eligible to include the medical costs in the medical expense deduction.
Child support that has been legally mandated has no tax consequence for either party. The IRS considers child support to operate outside the realm of taxes. If you pay child support, your just repost your income normally and do not decrease the amount paid into child support. Likewise, if you are the recipient of child support, you don’t increase your reported income.
In the past, alimony received and alimony given had to be accounted for in your taxable income. This is no longer the case, for divorces finalized after January 1, 2019, alimony payments are no longer deductible
According to the IRS, payments that qualify as alimony include the following:
- The spouses may not file jointly.
- Payments are cash. (Checks and money orders included)
- The payments to spouse/former spouse are under a divorce or separation agreement.
- Spouses are not members of the same household at the time.
- The payment is not child support or other property settlement.
- There is no liability to make the payments into cash or property after the death of the receiving spouse.
Thanks to Ellen @ Carlson Law for Content Share