With the extended filing deadline of June 15 fast approaching, it’s time to think about taxes and the way your divorce impacts them. Uncle Sam won’t let a filing deadline slide or hold off on charging late fees and interest for a missed payment just because your marital state was in flux. Here are some tax issues to consider while working through your divorce and filing your taxes.
Whether you file as married filing jointly, married filing separately, an individual, or head of household will affect your income tax brackets, standard deduction, and more. The standing of your divorce on December 31 will help determine which status you choose. When defining whether you are still married or divorced for tax purposes, the IRS considers various factors including whether you have received a separation decree or divorce settlement on or by December 31.
If you are still considered to be legally married at year’s end, you may have the option of selecting either “married filing jointly” or “married filing separately.” By filing jointly, you may be able to take advantage of certain credits that are unavailable to those who choose married filing separately. These may include the Earned Income Tax Credit, the American Opportunity and the Lifetime Learning education tax credits, and, in most cases, the Child and Dependent Care Tax credit.
In addition, the standard deduction for those filing jointly is higher than that for those filing separately. Timing your divorce to take advantage of the difference may benefit both you and your spouse.
While there are monetary advantages to filing jointly if you were still considered married at year’s end, there could also be a downside. In instances where spouses are considered jointly and severally liable for all taxes when filing a joint return, each spouse is responsible for all taxes due, even if one spouse earned none of the income. If your spouse misrepresented income or deductions on your joint return and the IRS assesses additional taxes, you are also considered responsible for the additional tax debt.
The decision on which status to choose is personal and includes factors outside of the money savings. It’s best to consult both your attorney and your tax professional to discuss your options.
Another tax issue to consider is who can claim your children as dependents on their tax return. Generally, only one parent can claim a child as a dependent during a tax year, and usually that is the custodial parent. The IRS does, however, allow divorced parents to divvy up or waive the dependent exemption. So even if you have custody of the children, you and your spouse can agree who gets to claim each child as a dependent on their annual tax form. To do so requires a written waiver from the IRS. Again, this is an issue that should be discussed with both your divorce attorney and your tax professional
Alimony and Child Support
Alimony and child support are no longer a tax issue. Regardless of which former spouse is paying, neither alimony nor child support is deductible for tax purposes. Alimony used to be deductible for the payer and considered income for the receiver but that all changed under the Tax Cuts & Jobs Act of 2017. For divorces finalized after December 31, 2018, alimony is neither a deductible expense for the payer nor income for the receiver.
Innocent Spouse Claims
In some cases, one spouse may be in a position to claim relief under the IRS Innocent Spouse provision. If you filed a joint return and the IRS has assessed additional taxes that you believe are due solely to your spouse or ex-spouse misreporting income or claiming improper credits and deductions, you may be eligible to apply for innocent spouse relief. There are specific rules to follow and forms to file, as well as deadlines, for claiming this relief. Speak with your attorney and accountant to find out if you qualify.
Costs of Getting Divorced
While some personal attorney expenses are deductible, expenses related to getting divorced are generally not. Legal fees for a divorce, court costs, fees related to tax advice in connection with the divorce, fees for property settlement, and other personal advice or counseling fees related to a divorce are usually not deductible. Contact your tax professional for specific advice on the tax treatment of any attorney’s or other professional service provider’s fees.
Our Divorce Attorneys Can Help You Sort Out Tax Questions Related to Divorce
Divorce is challenging, but with Alexandra Geczi LLC, you are not alone. Our attorneys are here to help you discreetly navigate the process and protect your interests so that you can move forward into a bright, bold future. Contact us today at 214-974-4449.