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Divorce and Uncle Sam: Top 10 Things You Should Know When Filing Your Taxes
by by Jessie Danninger, CPA, Rosen Divorce
If you've recently divorced or separated from your spouse, here are a few things you should know for the upcoming tax season:
1.What is my filing status? (Married, Single, Head of Household)
Marital standing at year end determines your filing status for the entire year. If you have a decree of divorce or separate maintenance, signed by a judge, you should file as single. Regardless of whether you have a signed decree you may be able to file as head of household. Filing as head of household may reduce your income tax obligation, but to qualify the following conditions must be met:
- You paid more than ½ the cost of keeping up your home for the tax year,
- Your home was the main home for your child for more than ½ the year, and
oYour spouse hasn't been a member of the household for 6 months.
If you can't file as single or head of household, then you must either file as married filing joint or married filing separate.
2.Is alimony taxable?
In general, alimony is taxable to the recipient (line 11 of the 2004 Form 1040) and deductible to the payor (line 34a of the 2004 Form 1040). However, some couples stipulate in their separation agreement that the alimony won't be deductible to the payor, or taxable to the recipient.
3.Is child support taxable?
No. Child support is neither taxable to the recipient nor deductible to the payor.
If the payor owes both alimony and child support but pays less than the total amount owed, the payments apply first to child support and then to alimony. If the separation agreement doesn't delineate separate alimony and child support payments, general "family support" payments are treated as child support for tax purposes, unless the alimony qualifications are met.
4.Who gets to claim the dependency exemption for the children?
In general, as long as the parents combined contribute at least ½ of the support of the child, the custodial parent gets the dependency exemption for the child. If custody is split or undeterminable, the parent who had physical custody for the greater part of the year gets the dependency exemption. Custodial parents can waive their right to the dependency exemption by filing Form 8332.
5. Who gets to claim the Child Tax credit and the Household and Dependent Care credit.
Only the parent who claims the exemption for the child may claim the Child Tax credit for that child. Unlike the exemption, it can't be traded. If you are the custodial parent, you can claim the Household and Dependent Care credit for the child even if you cannot claim the child's exemption. If you are the non-custodial parent, you cannot claim the Household and Dependent Care credit for the child even if you can claim the child's exemption.
6.Should my spouse and I file as married, filing separate or married, filing joint?
Filing joint may provide some tax benefits over filing separate. However, by filing separate the IRS can't hold you responsible for any unpaid taxes caused by your spouse's actions or omissions. The "innocent spouse" rule provides relief from this responsibility in some cases.
7.Are my divorce costs deductible?
In general legal fees are considered personal expenses so they aren't deductible.
However legal fees paid to get alimony and legal fees regarding the tax effects of divorce are deductible. The attorney must allocate fees paid for deductible and non-deductible services otherwise the deduction may be disallowed. The allowed deduction is a miscellaneous itemized deduction which is deductible only to the extent that, in the aggregate, the miscellaneous deductions exceed 2% of the taxpayer's adjusted gross income.
8.My spouse and I are using the married, filing separate filing status. Can I use the standard deduction if my spouse itemizes?
No. If spouses are using the married, filing separate filing status and one spouse itemizes their deductions, the other spouse must itemize as well.
9.Who gets the mortgage interest deduction and other itemized deductions?
If the marital home is owned by one spouse alone, only that spouse may claim a mortgage interest deduction. Deductible expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them. In general, deductible expenses paid out of joint funds are split 50/50 between the spouses, including mortgage interest. Mortgage interest for property titled by the entireties can be claimed by whichever spouse actually paid the expense.
10.Where can I go for more information about divorce and tax issues? Consult a tax expert or a lawyer specializing in divorce and family matters.
For more information on Rosen Divorce, or for an interview, please contact:
Alison Kramer, Director of Public Relations, Office: 919-256-1542, Cell: 919-523-7104 firstname.lastname@example.org or visit: www.rosendivorce.com
With offices in Raleigh and Charlotte, Rosen Divorce is the largest divorce firm in North Carolina. Founded in 1990, the firm is dedicated to providing individual growth and support to couples seeking divorce by helping them move forward with their lives. Our staff of attorneys, accountants, and specially trained divorce coaches expertly address the complex issues of ending a marriage. Our innovative approach acknowledges that divorce is so much more than just a legal matter. Specialties include child custody, alimony, property distribution, separation agreements, and domestic violence relief.
4101 Lake Boone Trail, Suite 500
Raleigh, NC 27607
"Divorce is Different Here"
About the Author
Jessie Danninger is a financial analyst with Rosen Divorce. She assist clients in all financial matters relating to divorce, including property distribution, child custody, alimony, and tax related issues. She is a certified divorce financial analyst and CPA.