Determine your filing status. Your marital status at the end of the year determines how you file your tax return. If you were divorced by midnight on December 31 of the tax year, you will file separately from your former spouse. If you are the custodial parent for your children, you may qualify for the favorable head of household status. If not, then you will file as a single taxpayer, even if you were married for part of the tax year.
Consider the tax implications of support.
If you were divorced before 2019 and have not been back to court, the recipient of maintenance must claim it on her tax return, but child support isn’t reported as income. If you rolled your support together into “family support” in your agreement, that makes it fully taxable to the recipient and deductible to the payer, just like maintenance. Child support isn’t deductible.
If you are divorced in 2019 or after, maintenance and child support are not deductible to the person who pays it nor are they income to the person who receives it.
Don’t run afoul of the special rules regarding support. If maintenance payments are concentrated in the first year or two after divorce, the IRS may consider the money to be non-deductible property settlement. And if maintenance is scheduled to end within six months of a child’s 18th or 21st birthday, the IRS may consider the alimony, in reality, to be disguised child support.
Review your divorce decree to see who will claim the child tax credits. If divorce agreement did not specify who claims the children as exemptions, then the exemption for your kids goes to the custodial parent. If you have joint custody, the exemption goes to the parent who has the child the greatest number of days during the tax year.
File first if tax credits are an issue. If you are entitled to claim the children on your return, but your ex threatens to claim them instead, file early in the year. That way, since you’ve already claimed the children, the IRS will make your ex prove he or she was entitled to the exemption.
Claim the child care credit if you are eligible. If you are the custodial parent and you incur work-related child care for children under the age of 13, you may be able to claim a credit for a portion of the cost. Unlike the exemption, which can be assigned using IRS Form 8332, the child care credit is available only to the custodial parent.
Review legal fees paid during your divorce. Although most legal fees are not tax-deductible, fees you paid for advice concerning the tax consequences of your divorce can be taken as an itemized deduction on Schedule A of your tax return. Other fees, such as the cost of preparing a new title for your rental property, can be added to the tax basis of your assets.
Make estimated tax payments if withholding isn’t enough. If your withholding won’t be enough to cover your taxes for the coming year, set up quarterly estimated tax payments so that you won’t owe taxes and penalties at the end of the coming year.
Divorce may not be as inevitable as taxes, but it certainly brings complications to tax filing. Follow these ten tips, and the process should go smoothly in the future.
Tajara Dommershausen is a founding partner at Petit & Dommershausen, SC. Her practice focuses primarily on family law including divorce, paternity, custody, child support, maintenance and property division. She practices in a wide range of counties throughout Northeast Wisconsin, including Outagamie, Winnebago, Waupaca, Calumet and Fond du Lac counties. Please give her a call today at 920-739-9900.