1. Make sure you choose the proper tax filing status. The correct status is determined by your marital status on December 31, 2013. If you were divorced on or before December 31. 2013, you can file your taxes as “single”, or “head of household” if you have a child and qualify. Otherwise, you must file either “married filing separately” or “married filing jointly”, depending on what you and your spouse have agreed. It is important that the two of you communicate about this issue. If you are represented by counsel, you should ask your attorney to confer with opposing counsel prior to filing.
- IRS Pub.504 Tip: “If both you and your spouse have income, you should usually figure your tax on both a joint return and separate returns (using the filing status of married filing separately) to see which gives the two of you the lower combined tax.”
2. Claim your child as an exemption if you are allowed. You may be entitled to reduce your taxes by claiming a dependency exemption for your child if you were divorced in 2013 or if you are filing married filing separately and you were designated as the custodial parent in your divorce judgment, written separation agreement or pendente lite court order.
If you were designated as the non-custodial parent, and lived separate and apart for the last six months of the year, you may still be entitled to claim the deduction if the custodial parent releases the exemption by executing Form 8332.
- IRS Pub.504 Tip: “You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. For more information, see the instructions for the tax form you file (Form 1040, 1040A, or 1040EZ).”
3. Do not deduct child support payments, it is not taxable. Unlike alimony, child support is not tax-deductible by the payor and not taxable to the payee. So, do not make the mistake of including child support on your federal income tax return.
4. Alimony is taxable by the supported spouse and tax-deductible by the payor, so be sure to include it. To qualify as alimony, the payment must be made pursuant to a divorce judgment, separation agreement, or pendente lite order, the spouses do not file a joint return, if you are not divorced you must be living separate and apart when payments are made, and the obligation terminates upon death.
- IRS Pub.504 Tip: “You must give the person who paid the alimony your social security number. If you do not, you may have to pay a $50 penalty.” Likewise, if you do not include your ex-spouse’s social security on your return, you may have to pay a $50 penalty and your deduction may be denied.
5. You cannot deduct the attorney fees for the divorce. Although you cannot deduct the attorney fees you incurred for your divorce, you may be able to deduct legal fees incurred for tax advice, appraisers, and actuaries in connection with your divorce, as well as accounting services associated with determining your proper tax or to help you get alimony. Since fees that you pay may include deductible and non-deductible expenses, be sure to request an itemized invoice, showing the amount charged for each service.
- IRS Pub.504 Tip: “You can claim deductible fees only if you itemize deductions on Schedule A (Form 1040). Claim them as miscellaneous itemized deductions subject to the 2%-of-adjusted-gross-income limit. For more information, see Publication 529, Miscellaneous Deductions.”
These five tips are just that, tips. They are not intended to be tax advice. Whenever negotiating a settlement agreement or going through a divorce, it is important to seek advice from a tax professional. Most attorneys are not tax attorneys and are only providing you advise based on the law, and are not providing you with tax advice. If you are planning on finalizing a divorce in 2014, you should understand how the recent changes to our tax laws might affect you. It is also wise to work with a financial planner, if you do not already have one, who can assist you in the event you stand to receive equitable distribution of assets or a lump sum of alimony to ensure longevity.
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