About Taxes: Tips for Filing When You’re Divorced and/or Getting Remarried
Going through the financial aspects of a divorce can be traumatic enough. However, what do you do when tax time rolls around and you are facing a mountain of paperwork and rules and you have no clue where to begin? There are so many ins and outs to filing when you are married or divorced, how do you ever make sense of all of the rules? Here are some tips to help.
1. FIGURE OUT HOW WHO WILL USE THE TAX EXEMPTION.
According to Sharon Drew and Gregg Herman, shareholders in the Milwaukee, Wisconsin, law firm of Loeb, Herman & Drew, S.C., which practices family law, this is a critical point. They write on the Law Offices of Raggio & Raggio, P.L.L.C., Web site, that the parent with custody of any children is the one that gets to claim the dependency exemption.
This can be a sticking point with many couples going through a divorce. Drew and Herman recommend settling on custody payments as a point of negotiation, meaning if the person paying for child support and/or alimony makes all payments in full and on time throughout the year, allow them to take the exemption, almost as a good faith gesture. San Francisco attorney Harry Gordon Oliver II agrees that the parent paying a significant amount in support should be able to claim the child.
“The parent providing more than 50 percent of the support should be entitled to claim the child as a dependent,” he said. “However, it’s important to note that a dependency deduction may be apportioned by the court.”
If this is not something settled in the beginning of the divorce process, you may find that you will have to battle out in litigation, which costs more money in the end. If you have more than one child, you can also each claim one of the children to keep things fair. However, it is also important to remember not to waste the exemption if one of the parents does not qualify, either because of too much or not enough income. If a parent filing as a single person makes less $6,400 per year or less than $8,250 per year filing as head of household, they do not make enough to take the deduction. Adversely, if one or both parents make more than $114,700 as a single person or $143,350 as head of household, the exemption is wasted and pointless.
2. FAMILIARIZE YOURSELF WITH POTENTIAL DEDUCTIONS.
There are so many different things than can be deducted from your return; it is hard to know what you can and cannot take. For example, many people do not realize that they can deduct some of their attorney’s fees from a divorce. For example, if your attorney assists you with tax, retirement or other forms of financial planning, you may be able to utilize a percentage of their fees as a deduction. Ask your tax preparer or a tax professional about whether this option is available to you.
This is where some people find themselves in trouble. That’s because experts say people do their own tax returns and claim child support they paid to their ex-spouse, which is not deductible on taxes, unlike alimony. Nor does child support have to be claimed.
4. HOW WILL YOU FILE?The status you choose when filing depends on what your status was at the end of the previous year. If you were already divorced and have physical custody of your children, you can file as Head of Household. If you were already divorced and do not have physical custody of your children, you would file as Single. If either of you has divorced or remarried within the same year, you would file as Married Filing Joint with your new spouse.
5. BE PREPARED.
When it is time to file, bring all paperwork regarding the divorce, including any custody decrees, property transfers, etc. This is important because your tax preparer can not only look through your papers and let you know what deductions you can take but also alert you to any potential pitfalls and/or obligations you may still have from the previous relationship.
Oliver says this is one of the most important things you can do after a divorce. “If a joint return was filed each individual is responsible for paying the entire tax liability,” he said. “However, if one spouse does not report all of his or her income and the IRS subsequently assesses a tax liability, the other spouse may or may not be responsible for the payment of the tax. This is usually the case if the other spouse is innocent — i.e. a spouse who meets certain tests, the most significant of which is the lack of knowledge of the unreported income earned by the other spouse.”
It is best to know before you are assessed any penalties or fines by the IRS. This is something your tax professional can help you with at the time of filing.
Every situation is different, which is why it is important to work closely with a professional when filing your return, at least for the initial filing after you have gotten divorced. Working with a knowledgeable tax preparation firm as well as consulting with a tax attorney will ensure that you do not inadvertently break any rules when filing and take all of the benefits and deductions available to you.
About the author: Lynda Moultry has been a freelance writer, editor, and graphic designer for more than a decade and is the Specialty Products Editor for the Tallahassee Democrat, a daily newspaper in Florida’s capital city. Lynda is also the author of “101 Plus-Size Women’s Clothing Tips” and has written for a number of different national publications and Web sites.