Divorce is difficult enough. If you are one of the many people who went through a divorce this 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 ten things you should know now that you are divorced.
1. Filing your taxes for the first time is easy with TurboTax. If this is the first time filing your taxes yourself with TurboTax, don’t worry. TurboTax will ask you simple questions about you and will give you the tax deductions and credits you’re eligible for based on your entries and whether or not you are divorced. If you have questions, you can also connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average 15 years-experience to get your tax questions answered.
2. 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.
3. 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 the new tax reform, beginning in tax year 2019 (the taxes you file 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.
4. 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 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.
5. 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.
6. 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 can take a higher standard deduction than if you were claiming single by claiming Head of Household. You can claim Head of Household if you have a qualifying dependent and provide more than half of their support. Under the new tax law, the standard deduction is $18,000 for Head of Household compared to $12,000 for single filing status.
7. 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.
8. 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, you may be able to claim a credit of up to $1,050 for one child and $2,100 for two or more kids.
9. If you are employed, change your withholding on Form W-4. It’s always best to review your withholding whenever there are life changes, and TurboTax W-4 calculator can help you easily figure out your withholding allowances.
10. Estimate your tax picture. With the new changes in your life, you can get an estimate of your overall tax picture using TurboTax TaxCaster or our Standard vs Itemized Deduction Interactive to see if you will now claim the standard deduction or itemize your deductions now that you are divorced.
Divorce may not be as inevitable as taxes, but it certainly brings new tax implications. Follow these ten tips and the process should go smoothly in the future.
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 CPA or Enrolled Agent with an average of 15 years-experience to get your tax questions answered from the comfort of your home. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your tax return.