Entering into a marriage comes with many romantic notions, but is also comes with practical ideas as well, such as the combining of finances and assets. The same practical language applies to those experiencing a separation. In addition to the emotions and other feelings that often pop up, there are other “to-do” items, such a tax filing, which must be considered and taken care of in a matter-of-fact way. If you are unsure about your tax filing status, here are some tips that separated parents must consider when filing.
Tax Tip #1:
While the IRS doesn’t offer deductions for divorce-related court costs and legal fees, it does allow deductions for portions of fees that relate to tax advice and alimony. This is significant because it can cover the services and counsel provided for all categories of taxes including property, estate, and income taxes that may come into play during a separation.
Tax Tip #2:
Filing status is one of the most common questions that separated parents face. It’s best to know this: if you were not separated by the end of the year, on or before December 31st, the IRS will consider you married for the entire tax year. That means if you are married in the eyes of the IRS’ tax year, then you cannot file as “single” or “head of household” even if you are physically and/or even mentally separated. This can also get tricky when considering your own state laws. There is a difference when looking at marriage from a legal and tax perspective.
Tax Tip #3:
Those who are newly separated may not consider all tax changes and one or both parents may try to claim children on tax returns. Mistakes now can cause bigger problems down the road, so it’s best to understand the implications of incorrectly filing taxes as separated parents. Both parents cannot claim their child or children as a dependent if filing separately. The tax exemption will most likely go to the parent who the child lived with the most in the past tax year.
Tax Tip #4:
The parent with whom the child lived with less than half the time of the tax year is eligible to claim a child as a dependent and take the tax exemption, only if the parent who has the majority of custody opts out of claiming the exemption.
One other option separated parents may choose is to alternate years claiming dependency when the custody is 50/50. Of course, this can all become rather complicated if the communication between you and your ex-spouse is limited.
If both you and your ex-spouse claim your child or children as dependents, then there will need to be a tax return amendment at some point in the future when the IRS discovers it, which may cause additional taxes owed. This would create debt not initially planned for and can create financial headaches.
A tax debt service can step in and help with solutions if you face this unique position. Industry professionals can review your tax and custody paperwork to determine which way is best to file taxes to avoid penalties or amendments. Tax debt relief services can also negotiate with the IRS on your behalf if you own a tax debt and are unable to make one-time payment and need to implement some type of payment arrangement.
It’s ideal to discuss all tax information up front to avoid any hassles or surprises from each other (or the IRS!) down the road. These tax tips will help you have an idea of what to look out for when filing taxes as a separated parent. Although it may be difficult to continue communication with your ex-spouse, a change like this, which involves your children and takes custody into account, is important to discuss for their sake and each of yours.