Divorces are a hassle. We can all agree on that. The process is long and tedious, the stress is sky-high, and there are numerous financial implications that both parties have to consider when the divorce is done.
One of these is the taxes after divorce. “How do I file taxes after divorce?” is one of the most frequent questions. Most people suspect that the divorce is going to change the way they’re paying their taxes, too, and that is completely accurate.
Taxes after Divorce
How you’ll pay your taxes after breaking your marriage is dictated by three basic aspects that apply to divorced couples: the filing status, the child support payments and alimony and the child custody.
The filing status is extremely important. When you are legally divorced on the brink of the new year, you have to file your taxes as “Head of Household” or “Single.” You can still claim “H.o.H” or “Single” if you are the beneficiary of a legal separation agreement with your spouse and you’ve lived apart from each other for half of the tax year.
Things get more complicated when the 31st of December finds you married and living together with your spouse. In this case, you must file under one of the two statuses: “Married filing separately” or “Married filing jointly.” “Jointly” means that you will file the taxes together with your spouse.” “Separately,” by contrast, means that you will file your taxes by yourself because your husband/wife is not trustworthy.
In this regard, filing taxes after divorce is a rather complicated process at first glance. Tax professionals can lead you on the right path if you lose yourself in this labyrinth.
Child Support Payments and Alimony
As you might know by now, you can claim the “Dependent Children” dispensation on your taxes when you are the parent that’s the primary custodian. Medical care expenses can be deducted from your taxes if you’re the one that paid for them, even though you do not have the custody of the children.
When it comes to alimony, you should know that this form of income is considered to be taxable income when you’re the parent that benefits from it.
At this point, it certainly looks that it’s a lot more to divorce and taxes than you imagined. Moreover, you can potentially save some money on taxes through the alimony, but not much, since it’s not fully deductible. If you are the parent that pays it, you will get some deductions. However, the payments you make for child support are not deductible.
If you thought that the IRS would provide a tax exemption from the primary custodian of the children, you were right, but this is not it. Exemptions can be divided between parents if the couple that has divorced has two children or more.
The “Innocent Spouse relief” is an IRS tool that can wipe off some of your taxes, penalties, and interests if your spouse has excluded some items on your taxes return, or reported some items that shouldn’t have been there.
It’s a form of divorce tax relief. It is not unusual for a determination by the IRS to be made in approximately six months, during which they will ask for your tax information and will be contacting your ex-spouse.
A similar concept is the “Injured Spouse” form of divorce tax relief. In comparison with the Innocent Spouse, this can be used when one of the parties must protect her/his common refund share once it is levied/seized because of the other spouse’s debt to the IRS. If you think you are eligible for an Innocent Spouse, you will have to file a Form 8857 with the IRS.
Hiring a Professional: Yes or No?
So, as you can see, there are plenty of taxes after divorce. This is a topic that has a lot of details to it. It’s not an easy process, by any means, in particular when you have to do it for the very first time, and you don’t know exactly how things are working.
That’s why it’s not only recommended but also vital to hire a tax professional to guide you through the jungle. A specialist in divorce and tax can deal with the paperwork and directly with the IRS on your behalf once you’ve provided the documentation that he/she needs.
The divorce itself is a highly emotional time, and it takes a serious toll on your psyche. The chances are that you will be stressed out when the time of filing the taxes comes and you have no idea what to do. Needless to say, a tax professional, especially one who’s versed in divorce matters, knows everything one needs to know on this topic. Thus, you may pay something extra, but you’ll get the support you need.