If you’re getting a divorce, the tax implications probably are not the most pressing issue in 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. As you prepare for life after your divorce, here are 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, you can still file for a joint return for the previous year. If you are eligible to file a joint return but you do not want to, you can choose the married filing separately status.
For those who cannot file a joint return, you may still be able to save some money by filing as head of household. The head of household status offers a larger standard deduction. Its larger tax brackets mean that you could pay a lower tax rate than if you file as single. 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 are an above-the-line deduction when filing taxes after divorce. That means you can deduct the alimony payments that you make from your gross income as you calculate your adjusted gross income. You can deduct alimony payments even if you claim the standard deduction.
On the flip side, all alimony payments that you receive qualify as income. You will need to report them as such on your Form 1040. Note that if you receive or make alimony payments, you need to file Form 1040. 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.
If you have not yet filed your 2017 taxes, you can also claim an exemption of $4,050 for each dependent or child. However, the Trump tax plan eliminated these exemptions in favor of a higher standard deduction for the 2018 tax year and beyond.
Deducting 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. There is one notable exception. If you are seeking taxable income (e.g. seeking to receive property or alimony payments) you can deduct some legal expenses from trying to get that income.
Let’s say you want alimony payments (or you want larger alimony payments) but your spouse disputes your right to that alimony. You can deduct the legal fees you incur during this dispute. There are some restrictions though. To deduct these expenses, the alimony you receive in one year must exceed 2% of your AGI. You also need to make sure your deductible legal expenses have their own bill. Because you cannot deduct any expenses from legal counseling, your attorney will need to provide you with separate bills for the nondeductible and deductible legal expenses.
If you can and plan to deduct any legal expenses when filing taxes after divorce, you need to itemize your deductions. Then you will claim this deduction as a Miscellaneous Itemized Deduction on your Form 1040 Schedule A.
If you have any questions about what you can and cannot deduct, it is best to talk to a tax expert to ensure 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 was completed on or before Dec. 31. If your divorce wasn’t complete until the start of the new year, it is still possible to file a joint return. Review your W-4 to ensure you claim the proper number of allowances. Alimony will factor into your AGI but child support will not. If you incur legal fees from trying to get alimony, you may be able to deduct those fees. However, you cannot deduct other legal fees. 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
- If 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.
- Make sure you know how divorce laws differ by state. The law is different in California or Texas than it is in Pennsylvania or Florida, so check all local rules to be best informed.
- 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.
- Divorce can very easily get in the way of your retirement plans. Not only can a divorce get expensive, but you may also lose (or gain) assets during the process. To see how your divorce will affect your retirement savings, consider talking to a financial advisor. An advisor can look at your finances with you and then create a plan that allows you to live the retirement you want. SmartAsset’s financial advisor matching tool uses a simple questionnaire to match you with advisors who meet your specific needs. First you’ll answer a series of questions about your financial situation and goals. Then the program will pair you with up to three advisors in your area based on your answers. You can then read the advisors’ profiles and interview them to choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.
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