The 2016 tax deadline is nearly upon us. If you are just beginning the process of separation or divorce, a financial checklist might be helpful to you. If this is your first year filing taxes after or during your divorce or separation, this post outlines some things to consider.First, and most importantly, consult with an expert in the preparation of your taxes to ensure that you have addressed all the tax implications of the divorce.
Taxes are complicated. Divorce and separation can be a difficult time emotionally and the process can be daunting. As a result, you might overlook issues that could have lasting implications on your family’s financial situation such as asset declarations, income bracket classification and filing status.
At the Center for Out-of-Court Divorce, we can help you identify important issues and get the expert advice needed to make informed choices for yourself and your family. We are not accountants, but we recognize the challenges and complexities of filing taxes while in the midst of, or shortly after, a separation or divorce.
During our process, we help clients identify or flag things that could be considerations in their financial planning and decision-making, and then link them to appropriate resources that can help them gather information.
Things to consider when filing with dependents
- Head of Household Status: If your child lives in your home for more than half the year, you may be eligible to file as head of household. This becomes relevant if you and your ex are considering a 50/50 parenting time schedule. Make sure your parenting time plan addresses who will get the 183rd overnight each year for tax purposes.
- Dependency Exemption: A parent may be entitled to a dependency exemption on their individual tax returns for each child they support. Your parenting plan should specify which parent may claim which child for each tax year following the divorce.
- Child Care Tax Credit: The parent who pays for work-related child care for a qualifying child may be able eligible for a tax credit on a portion of the expense. You will also need to identify who pays for work-related child care when calculating child support utilizing the Colorado child support guidelines.
Other divorce tax tidbits
- Filing Married vs Separate: Keep in mind that your marital status at the end of the year determines how you file your tax return. Thus, if you get divorced on December 31st, you and your ex must file separately even though you were married for 364 days of the year.
- Child Support & Maintenance: Maintenance, or what used to be known as alimony, is considered taxable income to the person who receives it. The person who pays maintenance gets to deduct it from his/her taxable income. Child support, on the other hand, is not taxable to the person receiving it and not deductible to the person paying it. As such, how you designate support dollars in your final divorce settlement agreement is very important from a tax perspective.
- Mortgage Interest Deduction: Make sure you address who will take the mortgage interest deduction on the former marital residence. This deduction can be split between the parties on their respective individual tax returns.
- Legal Fees: Most people are not aware that they can receive an itemized deduction on their tax return for legal expenses they incurred during the divorce process to discuss maintenance issues or the tax implications of their divorce.
Filing taxes and making financial decisions for your family can feel overwhelming, which is why we recommend seeking help to navigate this process.
Are you embarking on the process of separation or divorce, or know someone who might be? The Center for Out-of-Court Divorce is here to answer questions and support families through this process.