Divorce brings many adjustments: different living arrangements, different schedules with the kids, different expenses, and different budgets. If you’ve gotten divorced within the last year, there is one more change you are probably dealing with right now: filing your income taxes without a spouse. This adjustment can be a painful one, and not just for those who grew accustomed to handing off the tax-filing duties to their spouses. Between the changes in tax law in the last few years and the changes in your personal financial landscape, the prospect of filing your income taxes in 2020 (for the 2019 tax year) can be daunting. Here are some tax tips to help you make it through tax season without unnecessary stress.
Figuring Out Filing Status
How do I file taxes if I am separated or divorced?
If you are single now, you should file your taxes as a single person, right? Maybe. But there may be other options that are more advantageous for you from a tax perspective.
First off, if you were separated but still legally married (and not legally separated) as of December 31, 2019, you and your ex could file your taxes as a married couple for 2019, or married filing separately, and people who get along can agree to file taxes in a way that results in a lower tax burden.
Second, if you are not married as of December 31, you cannot file as married filing jointly or separately, but must file as single or head of household if you qualify.
Do I have to file a joint return because I am still legally married?
Technically, no. You could file “Married Filing Separately” though you lose out on some major benefits: a higher standard deduction, student loan interest deduction, the retirement savings credit, and earned income credit are all unavailable to parties filing “Married Filing Separately.” To top it off, this status may also increase your tax rate. If you were unprepared for that possibility, you could end up owing taxes instead of receiving a refund.
There are times when this filing status is appropriate, such as one spouse owing significant back taxes, one spouse being regularly under-withheld, or if one spouse is prone to “fudging” a bit more on self-employment income than the other is comfortable with. If you are still legally married, talk with your divorce attorney or tax professional about the most advantageous filing status for you. Finances may not be the only factor.
When am I considered unmarried for the tax year?
If your divorce was final by the time the ball dropped on New Year’s Eve, you were considered single for the entire tax year of 2019 in the eyes of the IRS. But that doesn’t mean that you must choose “Single” as your tax status. If you qualify, “Head of Household” is often a better option.
Can I file as Head of Household?
Requirements for head of household status include being considered unmarried, paying more than half the cost of keeping up a household for a qualifying child. There are some definite advantages to filing as head of household. To begin with, you would have a higher standard deduction and a lower tax rate than if you filed single. In addition, when filing as head of household, the tax brackets allow for higher income levels before the next bracket, where the higher tax rates kick in.
If you are not yet divorced and will want to claim head of household, and if you lived apart from your spouse for at least the last six months of the year (separated before July 1), be sure to arrange your parenting plan so that at least one child lives with you for more than half the year. Without that qualifying child, you won’t qualify to file under the head of household status.
You Can’t Deduct Alimony or Child Support
Can I claim spousal support paid to my ex? Do I have to claim alimony as income for my tax return?
In the past, spousal support (alimony) payments were taxable as income to the person who received them and deductible to the person making alimony payments. New federal tax laws mean that for divorces taking place in 2019 or later, that is no longer true. So if you have a new order to pay alimony, don’t expect those payments to lower your taxable income. The rules are different for people divorced in 2018 or before—the decree should say whether it is taxable and deductible or not. Likewise child support is not, and never has been, deductible from income for tax purposes.
If you are not yet divorced, and still working out the terms of your divorce settlement, be aware of the change to the rules about deducting alimony or spousal support. They could make a difference in what you and your spouse are willing to agree to.
Who is Claiming the Kids on Their Tax Return?
When you were married, if you and your spouse filed taxes jointly, you claimed your children as dependents on your joint return. If you are no longer filing jointly, you and your estranged spouse or former spouse cannot both claim the children on your tax return. Claiming the children may also benefit each of you in a different way. So, who gets to claim the kids on their tax return? Unsurprisingly, the answer is that it depends on your filing statuses and parenting time agreement.
Is the child dependency exemption still worth anything?
Yes, but it looks different than it used to. You might have heard that the federal Tax Cuts and Jobs Act (TCJA) did away with personal exemptions, including the dependency exemption, so you may think that it no longer matters whether you can claim a child as a dependent, but that’s not true.
There are other benefits to claiming your children as dependents, including the expanded Child Tax Credit (CTC) of $2,000 per child, up to $1,400 of which is refundable (meaning that even if you pay no tax, you could get up to $1,400 back from the government). The child tax credit goes to the parent claiming the dependency exemption. There are also state income tax credits for children to consider.
Can I deduct my child because I am the residential parent? Can I claim the child on my tax return if the custodial parent agrees?
Typically, a custodial (sole residential) parent, or one who had residential responsibility for the child for more than half the overnights under a shared parenting plan, is eligible to claim a child as a dependent. However, parents can agree to permit, and courts can order, the other parent the ability to claim the child using IRS Form 8332, which needs to be submitted each year that the residential parent is allowing the other parent to claim the child. Whatever you do, remember that both of you cannot claim the same child in the same year; otherwise, there could be trouble with the IRS.
So long as the head of household requirements are met, parents can agree to alternate years when they claim head of household status and years when they claim the dependent benefits, allowing the other parent to claim the other benefit in those years, if they agree (one parent claims the child in odd years, but head of household in even years, and vice versa). If there are two children or more, parents can maximize tax benefits by getting even more creative with head of household status and child dependency benefits.
The bottom line is to be mindful that tax considerations can affect your family’s bottom line if you are separated or divorced. Having counsel familiar with tax laws is a must. If you have questions about how your divorce will affect your taxes, we invite you to contact our Ohio family law office to schedule a consultation.