With an IRS filing deadline in April and January in the books, tax season is officially underway.
And while most people do not enjoy doing their taxes (unless they are expecting a major return) due to the complicated nature of filing, the recently divorced likely have even more questions than normal when it comes time to start filling out your 1040.
Nobody wants to submit false information and risk getting audited; however, the chances of making a critical mistake increases dramatically for the recently divorced due to the number of major changes that have occurred.
With a new filing status, changes to the deductions, exemptions and tax credits your used to, new payments and more, it is critical that you pay special attention when filing taxes after divorce — particularly in the first year.
Before you can even begin filling out your W-2 information, you will need to determine your filing status. When you were married, this was probably a no-brainer as you most likely used married, filing jointly to maximize your return in a dual-income household.
After you have divorced, however, you will likely have more than one option depending on a number of factors, and it may be difficult to know which will get you the best return.
The first step in determining your filing status will be looking at when your divorce was official. If you were completely divorced before December 31 of the filing year, you will be considered single for that entire year — even if the decree was not issued until the end of December.
You may also have the option of filing as Head of Household and receive a larger standard deduction if you meet the IRS standards for this status (being unmarried, having a dependent child live with you for more than half the year, paying more than half the cost of up keeping the home).
If the divorce was not finalized by the end of the year, you will be considered married for the previous e entirety of the previous year. This means you will either file as married, filing separately or potentially married, filing jointly.
If your divorce was fairly amicable, a joint filing may be the best option to maximize benefits for both parties.
Child dependency exemption
While the child dependency exemption has likely been a huge break on your taxes, it is only able to be claimed by one parent each year after you divorce, which is typically the parent granted primary physical custody.
As custody is generally awarded to mothers, divorced dads are often out of luck when it comes to getting this benefit — but not always. You are able to negotiate who will claim the child dependency exemption during your divorce, and it is fairly common to arrange alternating years.
It may also be more beneficial for the non-custodial parent to claim this exemption if they have a significantly higher tax liability, so you may be able to agree on a trade-off during the divorce negotiations.
However, if the non-custodial parent is claiming this exemption, the custodial parent must attach IRS Form 8332 to their return each year.
It should also be noted that when parents split custody down the middle (180 nights in each household), the parent with the higher adjusted gross income is awarded the exemption.
It is important to ensure your settlement agreement clearly stipulates who will be claiming the children on their taxes, because if both parents attempt to claim the same dependent, it will automatically raise some red flags with the IRS.
Common tax credits
If you are the claiming your children on your taxes, either as the custodial parent or through the release of IRS from 8832, you are open to claiming a number of potentially beneficial tax credits. There may be limitations on what you can claim, but some common credits to keep in mind include:
The child tax credit — gives parent with incomes below a certain threshold a $1,000 credit for each qualifying child under the age of 17.
Education credits — the American Opportunity Credit can be worth up to $2,500 during the first four years of a child’s education, and the Lifetime Learning Credit can save you up to $2,000 on higher education tuition costs.
Student loan interest deduction —You can claim the interest you paid on qualifying student loans up to $2,500.
Tuition deduction — you can claim up to $4,000 for qualified education expenses paid to enroll your child in an eligible institution.
Again, these credits are only available if you are claiming the child dependency exemption. If you are the non-custodial parent, you need to be sure that your ex has filed the release for these benefits to apply.
Special note: You may have been eligible for the earned income credit while married; however, only the custodial parent is able to claim the EIC after divorce, even with the IRS release.
Taxability of child support and alimony
When it comes to child support, the answer of whether you can deduct it is pretty cut and dry: Child support is neither tax deductible by the payor nor considered taxable income by the payee.
This is particularly unfortunate for divorced fathers, since they are far more likely to be the non-custodial parent.
However, alimony or spousal support is tax deductible for the payor and must be claimed as income by the recipient. Alimony is also an above-the-line deduction, so you are able to subtract it from your gross income before you reach your AGI.
The IRS does have some pretty strict requirements about what is considered alimony, so to be safe, ensure that you recite federal tax code IRC 71 directly in your decree to acknowledge that both parties understand the tax implications.
There are also certain circumstances where child support and alimony obligations can be rolled into one lump payment of “family support,” and in those cases , it would be treated as alimony and be deductible by the payor and count as income to the payee.
Obviously, there are a lot of changes in the lives of the recently divorced, and probably the last thing on your mind is how it will affect your taxes. However, this is a very important area to consider, as the divorce directly impacts a variety of boxes you can check and how your return is handled.
If you have always been a do-it-yourself kind of person and have filed your taxes on your own (which is easier nowadays than every before), this may be the time to consider speaking with a financial advisor or CPA to ensure you file correctly.
Not only do you want to make sure you are maximizing your return, but having the IRS breathing down your neck is probably the last thing you want when your divorce is still fresh.
Mat Camp is a former Lexicon Services Online Editor, who focused on providing a comprehensive look into all aspects of the divorce experience. On MensDivorce.com, he concentrated on issues, such as parenting time, custodial rights, mediation, the division of assets, and so much more.
Mr. Camp used the wealth of experience of Cordell & Cordell attorneys to bring tangible answers to reader questions in Ask a Lawyer articles, as well as offer a step by step process through the divorce experience with Cordell & Cordell Co-Founder and Principal Partner Joseph E. Cordell in Divorce 101: A Guide for Men.
Mr. Camp used thorough research to highlight the challenging reality that those who go through divorce or child custody issues face. He helped foster the continued success of the Men’s Divorce Survival Guide, the Men’s Divorce Podcast, and the Men’s Divorce YouTube series “Attorney Bites.”