Your filing status depends on exactly when you finalized the divorce. If you were divorced before midnight of December 31st of the previous year, you will file separately from your former spouse.
So if you are filing separately, you now need to determine if you can claim head of household or file as single. According to TurboTax, “If you are the custodial parent for your children, you may qualify for the favorable head of household status.” To qualify for head of household status, you must have lived apart from your former spouse for the last six months of the year and you have to pay more that half the costs to run a household. To learn clearer definitions of filing status, visit the IRS website.
Whoever is the custodial parent of the children claims them as exemptions and gets the child tax credit each year. If you have joint custody, the parent who houses the child for the greatest number of days throughout the year will claim the exemption. This will be outlined in your divorce agreement.
Child support does not affect your taxes. The payer does not get a deduction for child support and the recipient does not pay income tax. However, as TurboTax explains, “If you rolled your support together into ‘family support’ in your agreement, that makes it fully taxable to the recipient and deductible to the payer, just like alimony.” This benefits the payer, not the recipient.
One thing you can deduct for your children, even if you are not the custodial parent, are medical bills that you continued to pay after the divorce.
Transferring and allocating assets can be one of the trickier parts to navigate in a divorce settlement and often the main reason for involving lawyers. Take into consideration all the benefits as well as downsides to claiming assets for yourself. Any asset you acquire in the divorce settlement can later be taxed if you gain money on it. For instance, if you get the house, the sale of that house will result in a taxable gain. If you get money invested in a portfolio, you owe tax on the gains when you sell those stocks. Read all about how to handle assets with care during divorce—especially retirement assets—in this article from TurboTax.
Your new-found freedom can feel like a burden when tax season strikes. Avoid the pitfalls of incorrectly filing by educating yourself and hiring professionals when needed.
Disclaimer: McCullough and Associates LLC is not a financial consulting firm; We are not tax experts. If you are interested in more information or in need of counsel, consult with a tax professional as well as an experienced family lawyer.
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