Newly divorced? Here’s what you need to know this tax season.

Newly divorced? Here’s what you need to know this tax season.

January 11, 2021

Did you recently go through a divorce? As your marital status changes, so does your tax situation. Don’t panic, we are here to help.

Keep in mind, in 2020 we saw the tax deadline extended due to the pandemic. We do not anticipate that to be the case this year. Plan on April 15 being the due date per usual for individuals.

Determine Your Most Advantageous Tax Filing Status

If you are legally divorced by the last day of the calendar year, you must file “single” or “head of household.” There are bigger tax benefits for filing as “head of household.” However, you had to have a dependent living with you for more than half the year and you had to have paid for more than half of the upkeep of your home.

If you are separated but not legally divorced, you still have the option of filing a joint return or the married-filing-separately status. The joint return is likely to save you money.

Know Who Is Claiming Dependents

Normally the parent with primary custody will claim the exemption for dependent children on their tax return. Nonetheless, a noncustodial parent can claim the exemption as long as the ex-spouse is in agreement. In this scenario, a Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents) must be signed by the custodial parent and filed with the non-custodial parent’s tax return.

Additionally, a divorced couple with two or more children may decide to divide the exemptions between them. The dependent exemptions should be established at the time of the divorce and included in the divorce agreement. Even if a parent does not have custody, that parent still has the right to deduct their medical expenses if that parent paid for them.

The Child Care Credit

This is only available to the custodial parent. You can claim this credit if the child is under age 13 and you incurred work-related childcare. Therefore, if you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child you may qualify for a tax credit. This also applies to a disabled dependent of any age.

Child Support

The parent who pays child support is not able to deduct those payments on their tax returns. Child support is not considered taxable income for the parent who received the child support.

Alimony

This is considered an above-the-line deduction for the payer; therefore, the payer will receive a tax deduction for alimony payments. If you receive alimony, you must report that money as income on your tax return.

Legal Fees

The majority of legal fees accrued during the divorce are not tax-deductible but there are some exceptions. Subject to the 2% floor for miscellaneous expenses, you can deduct legal fees if you sought advice concerning property transfers and dependency exemptions and other tax advice, as long as the legal invoice details how much was charged for tax advice specifically.

If you haven’t already, make sure you change your information on Form W-4 to reflect your status change regarding allowances and withholding. Since there are many details to consider, you have to be careful when filing taxes for the first time after a divorce. However, if you follow the aforementioned tips the process should go smoothly and, hopefully, be much less painful than the process of the divorce.