Although filing your taxes may not be the most pressing practical or legal issue on your mind if you are recently divorced or in the process of a divorce, you need to understand how divorce impacts your tax filing and obligations. A divorce lawyer in Murfreesboro, Tennessee at Bennett, Michael & Hornsby discusses what you need to know about divorce and taxes.
Has Your Filing Status Changed?
Your filing status can have a significant impact on the amount of taxes you owe or the refund you receive. Your legal status on December 31st of the relevant tax year determines your filing status for tax purposes. (For your 2021 tax return — December 31, 2021). If your divorce was not legally completed (meaning officially filed with the court and a final decree signed and entered by the court) on December 31st then you were still married and can file a joint return. If your divorce was finalized on December 31st, you cannot file a joint return.
If you were still legally married you may decide to file a joint return because your standard deduction will be higher; however, there are situations that may make filing as “married filing separately” is the better option. Be sure to consult with a financial advisor before deciding which status to sue when filing your tax return.
If you were not legally married on December 31st, you may still be able to benefit from a higher standard deduction if you qualify to file as “head of household.” To file as “head of household” for 2021 you must meet all the following criteria:
- You were unmarried (single, divorced or legally separated) on December 31st.
- You paid more than half of the costs of keeping up a home for the year.
- You lived with a qualifying dependent (such as a child or other dependent) for more than six months of the year.
If you have minor children from the marriage, only one parent can claim “head of household” status for tax purposes. For this reason, it is wise to address this issue in your divorce decree.
Note: You may be entitled to relief from joint liability for tax, interest, and penalties on a joint tax return filed during the marriage under certain circumstances. Relief from joint liability is a complex issue that should be discussed with your divorce lawyer during your divorce.
How Are Alimony and Child Support Payments Handled?
How alimony payments are treated for tax purposes depends on when the divorce was finalized. If your divorce was finalized before Jan. 1, 2019, alimony payments are still considered an above-the-line deduction when filing taxes. Keep in mind, however, that if your divorce was modified after that date, it could impact your ability to deduct alimony payments.
Conversely, the default rule for alimony payments received from a divorce that was finalized before January 1, 2019, is to report the payments as income. If you believe your divorce agreement specifically says otherwise, consult with a divorce lawyer and/or financial adviser.
Child support payments made by the payor (party who made the payments) cannot be deducted nor must they be claimed as income by the payee (party who received the payments).
Who Gets to Claim the Children as Dependents?
If you have children from the marriage, it may affect both your filing status and your right to claim tax credits if you are legally entitled to claim them as dependents.
The Internal Revenue Service (IRS) rules state that the “custodial” parent is entitled to claim a child for tax purposes. A “custodial parent” is defined by the IRS as “the one whom the child lives with for more nights during the tax year.” It is common, however, for a divorce decree to specify which party can claim a child for tax purposes, to split the children up as dependents for tax purposes, or to alternate between the parents so that they both get the tax benefits every other year.
If you are able to claim at least one child as a dependent, you may benefit from the earned income tax credit (EITC) and the child and dependent care credit along with claiming head of household status.
Note: If you are not the custodial parent as defined by the IRS, you must have the custodial parent sign Form 8332 “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent” if you claim your child as a dependent on your tax return even if your divorce decree gives you the right to do so. You need to have a Form 8332 signed for each child and attach the forms to your tax return. If you are the custodial parent and you sign Form 8332 you cannot claim the child as a dependent for that tax year.
Contact a Murfreesboro Divorce Lawyer