Divorce is an emotional process and due to this some issues may be overlooked that can have a negative impact at tax time. Below are some questions you should ask yourself during the divorce process and at tax time.
1. What is my filing status after divorce?
Your marital status at the end of the year determines your filing status. If you have a settlement agreement and final decree, you can file as single. You may also file as head of household, which would decrease your tax obligation. To qualify as head of household you must meet these conditions.
- You paid more than ½ the cost of keeping up your home during the year.
- Your home was the main home for you and your children for ½ of the year.
- Your spouse hasn’t lived in the home for six months.
2. Should I file jointly with my ex spouse if I am eligible?
You can and, doing so may provide some benefits over filing separate. Keep in mind though, if you file jointly and your ex doesn’t meet their obligations to the IRS you can be held responsible.
3. Is child support taxable?
No, it is not taxable to the recipient or deductible to the payor. However, if the payor is paying both alimony and child support but is paying less than he/she is supposed to, the payments will apply to child support and then alimony. Therefore, if you are behind on child support but keeping up with alimony be sure you don’t take a deduction at tax time.
4. Are divorce costs deductible?
No, legal fees are considered personal expenses so they can’t be used as a deduction.
5. Is alimony taxable?
It is to the recipient and is deductible to the payor. It is considered earned income and in some situations, you may need to make estimated tax payments throughout the year to avoid any penalties when you file.
To avoid the issue of taxes and alimony you can have your divorce decree stipulate that the alimony won’t be deductible to the payor or taxable to the recipient. How your final decree is worded is important when tax time rolls around. It pays to be creative.
6. Do I get any tax benefits if I am paying alimony?
Yes, your alimony payments may be used to reduce your gross income.
7. Who can claim the child tax credit and dependent care credit?
The parent who claims the exemption for the child is the only parent who can claim the child tax credit. If you are the custodial parent, you can claim the dependent care credit for the child even if you can’t claim the child’s exemption. If you are the non-custodial parent, you can’t claim the dependent care credit even if you can claim the child’s exemption.
8. Who gets the dependency exemption for the children?
If both parents contribute at least ½ of the child’s living expenses, the custodial parent claims the child as a dependent. If custody hasn’t been determined or one parent pays the majority of the living expenses for a child and has physical custody for the majority of the year that parent may claim the child as a dependent.
If you are the non-custodial parent and are given the right to claim the child as a dependent you must also fill out a form 8332 from the IRS. This form must be signed by the custodial parent and attached to your income tax return before the IRS will recognize your right to claim the child.
9. What about mortgage interest and other itemized deductions?
If the home is owned in the name of only one spouse then that spouse claims the mortgage interest. Any deductible expenses that are paid out of joint funds are split evenly between the spouses. This includes any mortgage interest.