If you are in the midst of a divorce, or if your divorce was finalized this year, your tax return will require extra attention this year. It’s important to consult with a qualified tax professional to ensure that your return is completed properly and accurately and that you claim all of the tax benefits to which you are entitled.
Below are just a few of the questions that your recent or pending divorce may raise about your return.
What is your filing status?
If your divorce was finalized at any time in 2022 (even if it was on December 31), then you are considered to have been unmarried for all of 2022. This means that you would have to file as single or, if you qualify, as head of household. On the other hand, if your divorce is still pending or was finalized sometime after the beginning of 2023, then you will file either jointly or as married filing separately.
Your filing status can make a considerable difference in your tax liability and benefits. It’s important to understand these differences before you make a choice about your filing status. Consult with a professional to discuss your filing status options and how each will affect your return.
Who will claim dependents?
If you have children that were previously claimed with your spouse on a joint return, then after the divorce (or when spouses choose to file separately), only one parent can claim an individual child as a dependent for tax purposes. The IRS has rules about which parent is entitled to claim a child, but often, this question is addressed in the terms of a divorce decree.
It’s important that you and your spouse or former spouse both understand who will be taking the exemption for each of your children. If an exemption is awarded to a non-custodial parent, then the custodial parent should file Form 8332, Release of Claim to Exemption for Child by Custodial Parent. If you both attempt to claim the same child, then your exemption may be disallowed. Before making a decision about who will claim dependents, it’s wise to speak with a tax professional about your options and the complete tax consequences of each.
Who will deduct mortgage interest and property taxes?
If you owned a home together for all or part of 2022, then you and your spouse or former spouse will have to decide how to allocate your mortgage interest and property tax deductions. Generally, the deductions are split according to who paid these expenses. For example, if each of you paid half of the mortgage interest and property taxes for 2022, then each of you would claim half of each amount on your tax return. If you are unable to reach an agreement about how to allocate these deductions, then it’s important to get professional tax advice about your rights to claim them.
How do you treat spousal and child support?
Generally speaking, alimony (also known as spousal support) is deductible for the obligor and reportable income for the recipient; child support, on the other hand, is neither. That seems straightforward enough. However, what exactly falls into each category can be less so. Be sure to get professional advice to ensure that support payments are properly classified and reported.
If the court orders that support of any kind be paid from a retirement plan, then a Qualified Domestic Relations Order (QDRO) is necessary in order for the plan administrator to make payments to someone other than the plan participant, such as a former spouse or a dependent child. The specifics of the QDRO and what is done with distributions after they are taken have important tax consequences, so it’s important to get professional advice about these decisions.
Boelman Shaw Tax & Financial Planning combines professional tax and financial services at our offices in Des Moines. We can help you understand the tax consequences of financial decisions you make throughout the divorce process, determine the most tax-advantageous way for you to file your return during and in the year following your divorce, and make sure that your returns are accurate and complete.
Tax and accounting services provided through Boelman Shaw & Company, LLC. Advisory services provided through BSC Capital Partners, LLC a state of Iowa registered investment advisor.
Cordell. "Common Tax Issues for the Recently Divorced or Separated." The Huffington Post.
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"Personal Exemptions and Dependents." IRS.gov. Internal Revenue Service, n.d. Web. 4 Feb 2016.
"Retirement Topics - QDRO - Qualified Domestic Relations Order." IRS.gov. Internal Revenue Service, 14 Apr 2015. Web. 4 Feb 2016.
"Topic 452 - Alimony Paid." IRS.gov. Internal Revenue Service, 30 Dec 2015. Web. 4 Feb 2016.