Going through a divorce changes almost everything about a person's finances.
If couples have joint accounts and assets and debts held together, they must divide and open up new independent accounts. They need new plans and financial strategies. And they need to start filing tax returns that newly single people
Here are some things you must do as you drop your first returns on your own :.
Determine whether you are married or unmarried for tax purposes.
If you are in the process of getting a divorce, but your divorce is not final yet and you were not legally separated on the last day of the year, you usually need to file jointly or deposit married separately for the year.
If you were legally separated and divorced by the last day of the year for tax purposes you are considered unique for the whole year.
However, Chief household filing status, you may be considered unmarried, even if you are not legally separated or divorced.
to be considered unmarried for tax purposes and file as head of household, you must meet the following criteria :.
- a separate statement, meaning a return claiming married filing separately, single or head of household
- must have paid more than half the cost of maintaining your home for the tax year.
- your spouse did not live in the house during the last six months of the year.
- Must have maintained a principal residence for more than half the year for your child (or a child who is a dependent, even if you release the exemption to the other parent) .
you'll usually pay less tax by filing as head of household. The second best filing status, you may qualify for a divorced person is unique.
If you must use filing status Married separately, you will probably pay the highest tax filing.
If you are not divorced or considered unmarried, decide to file jointly or separately.
If you were married on the last day of the year, you can still file a joint return with your former spouse. This may be easier if you paid to public spending.
You might have a lower total tax bill with a joint return if you have both filed separately as certain tax deductions, credits and other benefits are not available or limited when you file separately.
occasionally a couple can save money by filing separately. This is likely to be true if one of the spouses of the deductions are limited by a percentage of income such as high medical expenses.
The best way to know which filing status results in a lower total bill of income tax is to enter numbers in both directions using TaxAct.
many couples in the midst of a divorce would rather not file jointly regardless of the tax consequences. For example, an individual may wonder if the former spouse is honest with the IRS, and they prefer not to sign a joint statement following.
They also may want to claim their own tax refund. Both are good reasons to consider filing a separate return.
Be sure to consider unpaid taxes in the divorce agreement.
The divorce court should take account of all assets and marital debts in the determination of a settlement. Make sure your lawyer knows all unpaid federal or state taxes.
Try to have tax arrears paid with joint marital property, if possible. It is best avoided because of back taxes with your former spouse after the divorce is final.
Understanding how alimony and child support are treated for tax purposes.
If you pay alimony, you can deduct on your tax return as an adjustment, even if you itemize your deductions. If you receive alimony, you must report as income.
Only alimony is deductible by the payer and taxable by the person who receives it. If a former spouse gives extra money voluntarily, or pay the mortgage of the other spouse or other expenses, it is not considered alimony.
child support, on the other hand, is not deductible by the parent who pays. The parent who receives child care support does not pay tax on it.
Deduct some costs of a divorce.
The cost base of a divorce are not deductible. However, you can deduct expenses you pay for expenses such as tax advice on divorce, determination or collection of support, determining the tax consequences of the succession of property settlement and evaluation and fresh actuary to determine the exact amount of the tax or to help get child support.
You generally deduct these expenses as miscellaneous deductions on Schedule A.
You can deduct with your itemized deductions to the extent that they, along with other miscellaneous deductions exceed 2 percent of your adjusted gross income.
Determining who gets to take the dependency exemptions.
If one parent has custody of a child, the custodial parent (for most of the year) generally claim the dependency exemption and the child tax credit to the eligible child.
However, a custodial parent can allow the other parent to take the exemption of the tax credit and child by signing the Form 8332.
Generally, only the custodial parent may claim the credit for earned income because the child must meet the residency requirement, which means that the child must have lived with the parent for more than six months of the year.
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