*The information presented here is general. Please consult a tax professional to evaluate your particular situation*
It’s that time of year. Tax season. The time when everyone rounds up their tax forms and related documents and hopes that Uncle Sam puts a little bit of money back in their pockets. It can be a rewarding time for some, but one thing remains constant; preparedness is key.
This is particularly true for divorcees. Here is some information that everyone in this situation should be aware of before filing their taxes. These details have the potential to significantly affect your tax returns.
What is the year of the divorce decree?
It is vital to understand which set of rules you are being governed by as a divorcee. Was your divorce officially decreed before December 31st, 2018? If so, 2019 tax law changes may not affect you. However, if you were divorced after the end of 2018, you will be affected by the latest tax code.
What is my filing status?
Marriage/divorce affects your filing status, as well as your ability to claim exemptions, certain deductions, and tax credits. Marital status is determined by your marital status on the final day of the tax year. If you were not married on the last day of the year, you should file as a single person or as a head of household. If you were married on the last day of the year, you should file as either married filing jointly or married filing separately. Your tax professional will be able to tell you the best way to file, given your unique set of circumstances.
Who claims dependent children?
Claiming dependents, and qualifying for child tax credits, has a significant impact on your taxes. In most cases, the parent with whom the child has spent 50% (plus one day) of the year, is the one who has the right to claim the child as a dependent. However, there are cases in which the child spends less than 50% of the time with one parent, yet that parent can still claim the child if certain criteria are met. Be sure to discuss these details with a tax professional if you feel this situation might apply to you.
How is alimony treated in taxes?
This is one of the areas most affected by the tax law changes of 2019. For divorces that were finalized before the end of 2018, alimony, or payments made between former spouses as directed by the divorce instrument, are tax deductible for the payer. These alimony payments count as income for the recipient. For divorces that were finalized after 2018, alimony is not deductible by the payer, and is not included in the recipient’s income.
Whether you are the payer or the payee, be sure to divulge any and all proof of these payments to a tax expert.
How do changes to divorce terms affect taxes?
Changes to divorce terms, or modifications, are often reflected in tax filings. These modifications can be related to alimony, living arrangements, children’s changing needs and schedules. All of these aspects of a divorce agreement and modification are vital to how taxes are filed, making it imperative that you make your tax professional aware of your changed situation.
You simply cannot be over prepared for tax season. Be sure to familiarize yourself with the IRS’s latest publications as you are collecting your documents for submission. Consult with a tax professional, or a professional such as a forensic accountant, if you have any questions.
*Every situation is unique. Be sure to consult with a tax professional for your particular circumstances*