“The hardest thing in the world to understand is the income tax.”–Albert Einstein
Filing taxes is often a complicated and tedious task that is ripe for procrastination. If your divorce became final in 2017, filing your taxes this year can be even more daunting. Here are a few things to think about if you are filing taxes after divorce that might help you avoid missteps and take advantage of potential tax savings.
- Filing Status- How Do I File? Why Does It Matter? The IRS considers you unmarried if you have a final decree of divorce or are legally separated under a separate maintenance agreement on December 31st. How you file will determine eligibility for benefits such as a higher standard deduction, lower tax brackets, and the opportunity to claim certain tax credits.
- Deductions and Credits for the Kids- Which Can I Claim? What’s It Worth? Although personal exemptions have been eliminated under the Tax Cuts and Jobs Act (TCJA), the parent who would have been eligible to claim a dependent under the old rules (generally the custodial parent) can claim certain credits such as the Child Tax Credit and certain education credits.
- Alimony and Child Support-Is this Income? Or a Deduction? Or Neither? These rules changed dramatically with the recently passed Tax Cuts and Jobs Act (TCJA). For divorces that occur after December 31, 2018, alimony will no longer be taxable to the recipient nor will it be eligible for deduction by the payer. Agreements in place before December 31, 2018 are not affected. Child support is (still) not taxable to the recipient nor can it be deducted by the paying spouse.
- Name Change- I Know Who I Am….but Does the IRS? Did you change your name after divorce? If so, make sure you notify Social Security Administration (SSA) BEFORE you file. If the IRS and SSA don’t call you by the same name, your return will not be processed and any refund will be delayed.
When asked about completing his income tax form Albert Einstein (who incidentally was divorced) responded, “This is a question too difficult for a mathematician. It should be asked of a philosopher.” No doubt Einstein was brilliant but his suggestion to seek counsel of a philosopher (although a bit tongue in cheek) is off the mark. You are better off seeking counsel of a financial advisor or tax professional to help you navigate the tax maze.
Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.