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.
1. Filing your taxes isn’t as hard as you think
If this is the first time filing your taxes yourself with TurboTax, don’t worry. TurboTax will ask simple questions about you and will give you the tax deductions and credits you’re eligible for based on your entries, whether or not you are divorced.
Not sure you want to go it alone? You can also fully hand over your taxes to a TurboTax Live tax expert to do your taxes for you from start to finish or get help from an expert along the way.
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. Now 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 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.
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 may be able to take a higher standard deduction for Head of Household than if you file claiming a 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 $19,400 for Head of Household compared to $12,950 for single filing status for tax year 2022 and $20,800 for Head of Household and $13,850 if you file as single for tax year 2023 (the taxes you typically file in 2024).
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
In previous years, the Child and Dependent Care credit was not a refundable credit. But for the 2021 tax year only, the credit was refundable if you lived in the United States for more than half of the year. This means that even if you don’t owe any taxes you could get the credit in the form of a tax refund.
Also for the 2021 tax year only, the Child and Dependent Care Credit expanded the percentage and the child care expense thresholds, so you can get a credit up to 50% of $8,000 ($4,000) in child care expenses for one child under 13 (no age limit if disabled), an incapacitated spouse or parent, or another dependent so that you can work and up to 50% of $16,000 in expenses ($8,000) for families with two or more dependents.
For tax year 2022 and 2023, the Child and Dependent Care credit has reverted to its prior limits of up to 35% of $3,000 ($1,050) for one qualifying dependent and up to 35% of $6,000 in expenses ($2,100) for two or more dependents and is refundable up to $1,400.
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. 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.
10. 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. See if you qualify here.
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