If you’re getting a divorce, the tax implications probably are not the most pressing issue on your mind. The specifics of filing taxes after divorce and how you draw up your divorce agreement could make a big difference when it comes to your tax refund. Many couples consult a financial advisor to help them divide assets and plan for a financial future after divorce. As you prepare for your divorce needs, here are some important things to think about so you can stay on top of your taxes.
Determine Your Filing Status
The filing statuses that you can use will depend on when your divorce is completed. If you complete your divorce on or before Dec. 31 (the final day of the tax year) then you cannot file a joint tax return. If the new year starts before your divorce becomes official, the IRS will still recognize you as married, and therefore allow you to file a joint return for the previous year. You’re also eligible to file a joint return, but if you do not want to you can choose the married filing separately status.
If you’re still legally married, filing a joint tax return may be your best option because you can get a higher standard deduction by combining your income with your spouse. The standard deduction is the amount of income that you can use to lower your tax bill.
For tax year 2023, the standard deduction is $27,700 for married couples filing jointly, $13,850 for single taxpayers and married individuals filing separately and $20,800 for heads of households.
For those who cannot file a joint return, you may still be able to save some money by filing as a head of household. Keep in mind that filing taxes after divorce gets complicated. So remember that if you and your ex-spouse are sharing custody of a child, only one of you can file as head of household (more on that later).
When filing taxes after divorce, you can only use the head of household status if you meet all three of the following requirements:
- On the last day of the year, you were considered unmarried (so you were single, divorced or legally separated).
- You paid more than half of the costs of keeping up a home for the year. That could include real estate taxes, home insurance, repairs, utilities and food eaten in the home.
- You lived with a qualifying dependent (such as a child or other dependent) for more then six months of the year.
Update Your W-4
If you and your spouse are employed, you will each fill out a W-4. This form tells your employer how much to withhold from your paycheck. Joint filers need to split their W-4 withholding between both spouses, so if you divorce, you may need to recalculate or adjust your allowances. Here’s a complete guide to filling out your W-4.
Alimony and Child Support
Alimony payments from divorce or separation agreements that were finalized before Jan. 1 are still considered an above-the-line deduction when filing taxes. But even if your divorce happened before that date, you should confirm with your tax expert to see if you can still deduct alimony payments when calculating your adjusted gross income.
On the flip side, all alimony payments received from finalized divorces before Jan 1, qualify as income (unless your agreement defines it differently). As the receiving spouse, you will need to report them as such on your Form 1040. Note that if you receive or make alimony payments, you cannot use forms 1040A or 1040EZ.
Child support payments work the opposite way of alimony payments. You cannot deduct any child support payments that you make. If you receive child support, you do not have to report it as income on your tax return.
Who Can Claim Children as Dependents?
If you have children, it’s important to understand who can claim them as dependents. This will affect tax credits that you can claim as well as your filing status.
The parent who can claim a child as a dependent is the custodial parent. The custodial parent is the one whom the child lives with for more nights during the tax year. A divorce agreement will often name the custodial parent.
If you are the custodial parent, you are eligible to claim the child as a dependent. That means you have the potential to claim the earned income tax credit (EITC), as well as the child and dependent care credit. When filing taxes after divorce, you may also be eligible to file taxes using the head of household status. As mentioned above, this will affect your income tax brackets when filing taxes after divorce.
If you are not the custodial parent, you are the noncustodial parent for tax purposes. You cannot claim the EITC or the child and dependent care credit. You also cannot file your taxes as a head of household. However, you may be able to claim some credits.
The noncustodial parent can claim a child as a dependent if the custodial parent signs Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. In that case, the noncustodial parent is eligible to claim the Child Tax Credit and the Additional Child Tax Credit.
In order to Use Form 8332, the custodial parent will need to sign it and the noncustodial parent will need to attach it to his or her tax return. Complete one copy of Form 8332 for each child.
Note that if you are the custodial parent and you sign Form 8332, you can no longer claim the child as your dependent, and you cannot revoke it until the following tax year. You should also keep in mind that the Trump tax plan eliminated exemptions for dependents in favor of a higher standard deduction.
Can I Deduct Legal Fees When Filing Taxes After Divorce?
In general, you cannot deduct legal expenses from filing a divorce. For example, you cannot deduct fees for counseling, litigation or tax advice that you got during your divorce.
The 2017 Trump tax plan also eliminated the deduction of legal expenses that were associated with generating income (e.g. seeking to receive property or alimony payments). Before the tax code changes, those legal fees qualified as a miscellaneous itemized deduction.
It is worth noting that for taxpayers filing now, the IRS said that “if you have no legal responsibility arising from the divorce settlement or decree to pay your spouse’s legal fees, your payments are gifts and may be subject to the gift tax.”
For any questions about divorce legal fees, it is best to talk to a tax expert. This will help to ensure that you handle everything properly.
If you’re going through a divorce, it’s important to make sure you understand how it will impact your taxes. For starters, review your filing status. You will not be able to file a joint return if your divorce goes through on or before Dec. 31. If your divorce wasn’t complete until the start of the new year, it’s still possible to file jointly.
Alimony can still factor into your AGI, but child support will not. If you have any specific tax questions about your divorce, it’s best to work with a tax professional.
Tips for Getting Through Tax Season
- Divorce can easily get in the way of your retirement plans. Not only can it get expensive, but you may also lose or gain assets during the process. Consider working with a financial advisor to help you create a plan for your financial goals after divorce. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Let’s say you file a joint return with your ex-spouse and you expect a refund. Make sure you understand who will get the refund. This tax refund calculator will give you an idea whether or not you can expect a refund.
- There are a number of credits available to taxpayers with children. We mentioned some of them, but there are also other benefits such as state income tax credits. You can learn more about child tax credits and their requirements by reading our guide to child tax credits.
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