Too often when I’m interviewing a new client, she says, “My husband took care of everything, including the taxes. I don’t even know where to start!”
I understand that most families find taxes confusing and somewhat overwhelming. Additionally, too many individuals rely on their spouse to handle everything. Divorce creates a challenging landscape which creates significant stress. The good news is that you don’t have to go it alone! You can build your confidence & knowledge by surrounding yourself with competent financial & legal experts.
As an Enrolled Agent & Certified Divorce Financial Analyst, I’ve helped numerous individuals tackle their tax returns in the early years of their divorce. There are specific rules to follow which can become complex depending on your individual situation. On top of all of this, the Tax Cuts & Jobs Act, TCJA, has created the most sweeping changes to the tax code since 1986. The following are some general guidelines that should help you navigate your tax situation this coming year.
Filing Status & Deductions
If you are still married on December 31 then you typically will either file married filing jointly or married filing separately. You may file separately if you and your spouse cannot agree on your taxes or if you have other legal reasons to file separately. Filing separately will typically result in higher taxes than filing jointly. Additionally, there are a variety of tax credits and deductions that are either eliminated or significantly reduced. Last, if you file separately, you can only itemize if your spouse itemizes. The advantage is that you will not be responsible for your spouse’s tax liabilities.
For 2018, the standard deduction for married filing jointly is $24,000. The standard deduction for married filing separate & for individuals is $12,000. Last, the Head of Household standard deduction is $18,000.
I Got Divorced Before December 31st. Now What?
If you are divorced before the end of the year, the you may file either Single or as Head of Household (HOH). It’s important to know if you qualify to file HOH as this filing status is more favorable than single. In order to file HOH, you must be unmarried for the tax year, have a qualifying child or dependents & provide for more than half of the household expenses.
Who Claims the Kids?
The tax benefits of claiming your children on your tax return has been watered down due to the TCJA. As personal exemptions have disappeared, the tax benefits for claiming your children are now limited to certain tax credits like the Child Tax Credit. This credit has doubled to $2,000 per child for 2018.
Your divorce decree typically specifies the terms of joint & legal custody for your children. Using the appropriate filing guidelines, the custodial parent typically will file HOH while the non-custodial parent files Single (unless either of you re-marry). We generally see an alternating pattern which provides guidance on how to claim which child in each year. It’s important to note that you cannot file HOH if you do not meet the IRS guidelines even if you are claiming your children for tax reasons. In Utah, if there is a joint physical custody of the children with a 50-50 split, one parent will have the children for 183 days and the other parent will have the children for 182 days. Therefore, the custodial parent will file HOH and the non-custodial parent files single.
In order to properly file, the custodial parent needs to fill out, sign IRS form 8832 & provide a copy to the non-custodial parent. This form releases the child/dependent claim to the non-custodial parent. You can fill this form out for one year or for multiple years. This form will be given to the noncustodial parent so that they can prove to the IRS that they have legal claim to that dependent child. It’s important to note that again even if you are the noncustodial Parent, you can claim the child on your taxes but you cannot file head of household.
Simple Yet Complex
If you’re just getting started, it’s easy to get overwhelmed. Seek a qualified tax & financial professional who understand the complex divorce landscape. Contact our office for a free consult.
About the Author:
Joseph A. Davis, EA, CDFA® has over 14 years in the financial services industry. Joe is the managing partner for Davis Financial LLC, Fit Divorce Planning and Tax Smart Pros. He is a Certified Divorce Financial Analyst & an Enrolled Agent. As an EA, Joe has unlimited rights to represent taxpayers before the IRS in all 50 states regarding any tax issue. He also holds FINRA licenses 7, 66 & 24. When Joe isn't obsessing over his work - you can find him at home, playing with his children & probably mowing his lawn. You can contact him at firstname.lastname@example.org.