Divorce is difficult and no one is immune to it. There have been a number of high profile divorces in the news this year, and last year the Center for Disease Control (CDC) reported over 2 million married couples filed for divorce.
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Things to Know about Filing Taxes after Divorce
If you are one of the many people who went through a divorce last year, you will be coping with a different tax situation as a result and may even be filing your own tax return for the first time. Here are 10 things you should know now that you are divorced.
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Understand your filing status
Your marital status at the end of the year determines how you file your tax return. If you were divorced by midnight on December 31 of the tax year, you will file separately from your former spouse. If you are the custodial parent for your children, you may qualify for the favorable head of household status. If not, you will file as a single taxpayer even if you were married for part of the tax year. TurboTax will ask you simple questions and will determine the filing status that’s best for you based on your entries.
Consider the tax implications of child support
Child support is not tax-deductible to the person who pays it, and alimony paid will only be tax-deductible if your divorce was already final in 2018. Likewise, the recipient of alimony must claim it on their tax return if the divorce was final by December 31, 2018, but child support isn’t reported as income.
If you rolled your support together into “family support” in your agreement, that makes it fully taxable to the recipient and deductible to the payer, just like alimony. Under tax reform, beginning in the tax year 2019 (the taxes you filed in 2020), the person paying alimony is no longer allowed to deduct the alimony paid, and the person receiving alimony will no longer have to claim the alimony as income if your divorce was final after December 31, 2018. Divorces final prior to 2019 are grandfathered under the old rules.
Don’t run afoul of the special rules regarding support
If alimony payments are concentrated in the first year or two after divorce, the IRS may consider the money to be a non-deductible property settlement.
Additionally, if alimony is scheduled to end within six months of a child’s 18th or 21st birthday, the IRS may consider the alimony, in reality, to be disguised child support.
Review your divorce decree to see who will claim the children as dependents
If your divorce agreement did not specify who claims the children as dependents, then the custodial parent gets to claim them. If you have joint custody, the parent who has the child the greatest number of days during the tax year gets to claim the child as a dependent.
Claim Head of Household if You Have a Child
If you are considered single on the last day of the year (whether divorced or legally separated), you may be able to take a higher standard deduction for Head of Household than if you file claiming single status. You can claim Head of Household if you have a qualifying dependent and provide more than half of their support. The standard deduction is $18,650 for Head of Household compared to $12,400 for single filing status for the tax year 2020.
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File first if you are entitled to claim your child but there are issues with your ex
If you are entitled to claim your children on your tax return, but your ex threatens to claim them instead, file early in the year. That way, since you’ve already claimed your children, the IRS will make your ex prove he or she was entitled to claim them.
Claim the Child and Dependent Care Credit if you are eligible
If you are the custodial parent and you incur work-related child care for children under the age of 13 (no age limit if disabled), you may be able to claim a credit of up to $1,050 for one child and $2,100 for two or more kids for the tax year 2020.
If you are employed, change your withholding on Form W-4
It’s always best to review your withholding whenever there are life changes. Update your W-4 with your employer to make sure that it reflects the most up-to-date information related to changes in your filing status, dependents, or income.
Estimate your tax picture
With the new changes in your life, you can get an estimate of your overall tax picture by going online with TurboTax. You don’t pay anything until you file, and in some cases, you may be able to file for free.
TurboTax Has You Covered
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Don’t worry about knowing the tax implications of divorce. TurboTax will ask simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers.
If you have questions, you can connect live via one-way video to a TurboTax Live tax expert with an average of 12 years of experience to get your tax questions answered from the comfort of your home. TurboTax Live tax experts are available in English and Spanish, year-round.