Divorce proceedings can be complicated.? Filing a tax return can be complicated.? Filing a tax return in the midst of a divorce proceeding can be completely overwhelming.
The attorneys at Sherer Law Offices regularly work with expert tax and accounting professionals to help our clients make sense of what can feel like chaos.? As you get ready to prepare your taxes, here are some things to remember.
Filing Status ? Where Were You on December 31st?
When filing your taxes, one of the first things you?ll need to know is your filing status.? In the end, the only day the IRS really cares about your status is December 31st of the filing year.
If your divorce is not finalized by the end of the tax year, you will need to weigh the pros and cons of a joint return.? If you did finalize your divorce on or before December 31st, then you do not have the option to file as a married person ? even if you were technically married for 364 days out of the year.? Your only filing status options after the divorce are ?Head of Household? or ?Single.?
You should consult with your tax advisor and your attorney about the best option for your situation.? There are some tax advantages to filing as ?Head of Household? rather than as ?Single? or ?Married Filing Single,? but to qualify you will need to meet certain requirements:
- You will need proof that you paid more than one-half of the housing costs during the filing year.
- You must verify that you lived separately from your spouse during the second half of the filing year.
- If applicable, dependent children must have lived with you for at least one-half of the filing year.
The third issue of dependent children takes us to the next topic of concern.
Claiming Dependents
IRS regulations state that only the parent with whom the child(ren) spends the most time can claim the child(ren) as dependent(s).? The custody schedule is usually used to determine which parent had the child(ren) for more than 50% of the taxable year. Each child may only be claimed as a dependent on one tax filing.? If the custodial parent gives permission to the non-custodial parent to claim a child as a dependent, the negotiation must be in writing and a submission of IRS Form 8332 is required.
For the taxpayer who will be claiming dependents, there are some deductions and credits available.? The Child Tax Credit and Education Credits can only be issued to a custodial parent who claims the child as a dependent.
If you are the non-custodial parent and do not claim a child as a dependent, but still pay for things outside of child support, there are some other tax credits available.? A non-custodial parent may qualify for Medical Expense Deductions and Childcare Credit is available for work-related childcare expenses for children under the age of thirteen.
Child Support and Alimony
Since child support is viewed as a legal obligation and necessary for the wellbeing of a child, child support payments are not tax deductible.? Spousal support (alimony), on the other hand, can be tax deductible for the paying spouse and taxable to the receiving spouse.? Be aware, however, that various requirements must be met and certain clawbacks (the recovery of previously distributed money) may exist.
Transferable assets may also need to be considered when filing your taxes.? Retirement accounts, real estate, cash, personal property, and investment accounts that are transferred from one spouse to another are not taxable upon the transfer, but are taxable if liquidated.? Again, you should consult with an experienced attorney and tax advisor about the immediate and future tax implications of property transfers.
Filing your taxes in the year of a divorce and in subsequent years thereafter can be extremely complex and confusing. To help protect yourself financially, contact the legal advisors at Sherer Law Offices for a comprehensive review of your tax liabilities.
