9 essential tips for filing taxes when getting divorced
Many people worry about filing taxes while going through a divorce.
Most of them find themselves on the outside of the tax world, which makes the process of filing taxes during a divorce even more complicated.
These tips should make it easier for you to file taxes and split tax refunds when divorcing.
1. Get itemized bills from the concerned authority
If you’re getting divorced and paying a lot of money to lawyers and accountants, make sure you are getting itemized bills. It’s important to know that lawyer advice typically is not deductible on your tax return unless it’s related to tax advice.
A simple example can be receiving a detailed bill from the lawyer. The bill mentions your expenditure of $14,000, where 10K is billed and 40% of the time was spent on a topic related to tax.
You are simply getting a $4000 deduction and will go a long way to help you pay such bills. So, it’s important to get itemized bills so that most of the deductions can be made from your end while filing taxes.
2. Be aware of filing gift tax returns
Depending on any property settlement, when you get divorced, sometimes one spouse will give a property to another. In such a scenario, it is important to file tax returns due to property transfers.
This form conveys that you are living at another address, and if the IRS has a correspondence to you, it will be delivered to the new address.
If you’re going through a hostile divorce and your spouse is getting all the certified mail, you’re most likely not going to read it. So, make sure to file form 8822 when you are filing taxes during a divorce.
5. Request for innocent spouse relief
An innocent spouse is simply a taxpayer who did not know and did not have a reason to know that his or her spouse underpaid their income tax liabilities. Innocent spouse relief or Form-8857 comes with a purpose.
If your spouse has legal issues with the IRS and you filed a joint return, you both will be responsible for that return.
So, when you are filing taxes during a divorce, it’s worth filing this form if you think of not going to the penitentiary because of something your spouse did, and you were not aware of it.
6. Use the proper strategy to reduce the alimony tax burden
You should look at the availability of any non-liquid assets such as stocks or brokerage funds that have increased in value. Moreover, lump-sum alimony payment may provide the paying spouse with the ability to get the ‘tax hit.’
This will cover one year and move on gradually. Also, for receiving spouses, an alternative option to traditional alimony should be carefully scrutinized, and a proper investment plan should be in place before going for this option.
7. The name should match with the tax form
Some people often change their names after getting divorced. It is important to take the necessary steps when filing taxes after divorce so that the name on your tax return matches with the name registered on the SSA (Social Security Administration).
Mismatched names will only cause problems with your return processing and therefore delay the other steps when you are filing taxes during a divorce.
To avoid this, you can simply change your name by filing an application for a social security card at your local SSA office or by email and provide an issued document as legal proof against your name change.
8. Only one parent can claim tax exemptions for a child
If you are having children and getting divorced, only one parent will be able to claim a tax exemption for them. Most importantly, the child must live with you during the year to be able to claim them as a dependent, but a non-custodial parent can still take the exemption.
For this, the custodial parent permission will be required, and that parent must sign the IRS Form 8332. Also, child support payments are not taxed, or deductible and they’re not considered an income source.
9. Determine your filing status
Couples who are separating but not divorced before the year’s end have the alternative of filing a joint return.
The option is to record as married filing independently. It’s the year when you finalize your divorce that you lose the alternative to record as a married joint or married separate.
As such, your conjugal status as of December 31 of every year controls your filing status for that whole year.
On the off chance that you can’t file a joint return for the year since you’re divorced by year-end, you can file as the head of the family (and get the advantage of a bigger standard deduction and gentler tax brackets) if you had a dependent living with you for the greater part the year, and you paid for the expenses.
If you feel disconnected or frustrated about the state of your marriage but want to avoid separation and/or divorce, the marriage.com course meant for married couples is an excellent resource to help you overcome the most challenging aspects of being married.
Personal Finance expert and Tax Filing advisor with 3 years of experience helping people dealing with debt, and the IRS. I'm also a writer and I like to Cover topics that help people manage money and have a healthy financial life.