IRS forms can come across as a confusing number jumble (1040, 1099, 8332, W-2). What already is a complex and disconcerting process for many is exacerbated by divorce.
Divorce brings considerable changes to the way you file your taxes and which exemptions and deductions you can claim.
Below are the five most frequently asked questions to Cordell & Cordell attorneys about taxes and divorce.
What Is My Filing Status?
Your tax filing status, for most filers, is determined on December 31. If you were still married on that day, then you and your spouse can file a return with the status "married, filing jointly."
This is true even if your divorce began before the end of the year and even if you are living separately and have not relied upon each other's income.
This is a preferred status, and there are many advantages to filing taxes with it, such as the exclusion limits for capital gain on the sale of a principal residence. It may be, and often is, financially beneficial to file with this status even if you are divorced or divorcing.
However, joint filers are -- you guessed it -- jointly liable in the event of an audit.
Can I Claim The Dependency Exemption?
Unless your divorce settlement agreement or divorce decree says otherwise, the right to claim your child as a dependent belongs to the custodial parent.
According to the IRS, this means the parent who has the child more than one-half of the year.
However, if both parents spend one-half of the year equally then it is the parent who pays child support, and, if neither, then it is the parent with the higher adjusted gross income.
Can I Deduct Child Support?
The simple answer is no. However, you might be paying expenses for your children that are deductible.
These include qualifying childcare expenses and certain healthcare expenses for minors, and college tuition and school expenses for adults. Two federal options, which are not often discussed but could be helpful, allow you to deduct up to $8,500 total -- the Tuition and Fees Deduction and the American Opportunity Tax Credit.
Can I Deduct Alimony?
No matter what your settlement agreement/divorce decree calls it, you can deduct payments to your ex under four circumstances.
You can deduct payments that:
1.) Are made pursuant to a written agreement or judgment;
2.) When you are not members of the same household, provided that
3.) The payments are not child support, which is determined, in part, by a three-year payment analysis; and
4.) They cease upon your ex's death.
When you make payments under all of these circumstances, you can probably deduct the payments from your income.
This is one of the benefits of paying alimony, rather than a property settlement payment. Property transfers incident to divorce are not taxable income to the recipient and, therefore, are not tax deductible to the payor.
This means, for example, you could not deduct your monthly payments to pay off your ex's share of the equity in the home you keep.
Can I Deduct Divorce Attorney Fees?
It's unlikely you can deduct your divorce attorney fees. However, some of the costs you incur as a result of your divorce may be deductible.
If you plan to itemize your deductions and your total miscellaneous deductions exceed 2% of your adjusted gross income, then you can deduct three types of fees.
1.) Fees you paid for tax planning (such as your consultation with your CPA during your divorce to determine the best property settlement payout);
2.) Fees you paid to obtain taxable income (such as your attorney fees for collecting spousal support, if you are the recipient); and
3.) Fees you paid for securing an interest in a qualified retirement plan (such as those paid to divide your and your ex's defined contribution plans).
If you do not itemize deductions or your deductions do not pass the 2% adjusted gross income test, then you cannot deduct these fees.
Note: This information is general in nature and should not be construed as tax advice. You should work with your attorney or tax professional to determine the tax advantages that will work best for your situation.
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