Taxes are complex under the best of circumstances. After a divorce or child custody agreement, however, your tax obligations can get even more confusing and frustrating – at least temporarily.
Below is a brief overview of what to consider when doing post-divorce or post-custody taxes. For case-specific advice, however, you should contact a certified public accountant or other tax/finance professional.
Will you file jointly or singly? It depends on timing.
Divorce can take months to complete, and that can make it difficult to know how to approach taxes. Thankfully, the IRS has an unambiguous rule about when you are married vs. divorced. If your divorce was finalized any time before the end Dec. 31, 2020, you are considered divorced all year. If the divorce wasn’t finalized within that time frame, you are considered married all year.
Things get a little trickier when it comes to “married filing jointly” vs. “married filing separately.” This is a decision you’ll need to make if filing while you are separated or while your divorce is still pending. There are pros and cons to each.
If filing jointly, you will qualify for a higher standard deduction. That’s a plus. On the downside, filing jointly means that you are both liable for all taxes owed by either of you. You are also liable if your spouse has misreported critical information or committed fraud.
If filing separately, either you or your spouse may be able to file as “head of household,” which results in a higher tax deduction. But there are some qualifications you need to meet in order to claim HOH status, so be careful to check into the details before making that decision.
Remember that only one parent can claim a given child tax credit
When parents share custody in roughly equal measure, a problem can occur at tax time. If both parents attempt to claim the same child for the purposes of a tax credit, it technically constitutes fraud. Individual children can only be counted once on their parents’ tax returns.
If you have more than one child, can discuss splitting with your ex-spouse. With four kids, for example, each parent could claim two. If you have only one child or an uneven number of the children, the exemption (or the increased exemption) should go to the parent who has custody more often (even if “more often” means just a few extra days out of the year).
Other deductions are all but gone
It used to be the case that you could deduct both alimony and child support payments. Conversely, the person receiving alimony payments was also required to list them as income. Both of those rules went away with the passage of the Tax Cuts and Jobs Act in 2019. The same act also eliminated the possibility of deducting certain divorce-related legal expenses.
Find the right professional to help you
An experienced family law attorney can help answer any questions you may have about the divorce and child custody aspects of your case. When filing for the first time after these processes are complete, it may be wise to hire a CPA or other tax professional.