Monday, March 08, 2010

Divorced in 09? Here are Some Helpful Tax Hints

Many times we are very confused how to file our taxes for the year in which we were divorced. It can be complicated and here are a few tips that may help you.

I received a question from a woman who had divorced in 2009, and she was concerned about having to file taxes with her ex-spouse for her 2009 tax return. Fortunately, the law provides a solution: it simply says that exes cannot file together.

There is one important date to always bear in mind and that is Dec. 31. If you are married as of that date you may file as 'married filing jointly,' 'married filing separately,' and under some circumstances as head of household, for that tax year.

If you were divorced as of Dec. 31 then you can file as single or head of household for that tax year.

Head of household requires that you have a qualifying individual living with you for at least 183 days of that tax year. It is important to note that head of household status is not conferred upon you by the divorce decree or judicial order but by the requirements as outlined in the Internal Revenue Code.

You may have a dependency exemption for any children and those can be allocated in the divorce decree. Often the divorce decree will call for each parent to claim the deduction on alternating years. If you are not the custodial parent then you will be required to file form 8322 which is titled Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. (Thank goodness for form numbers.)

You may claim a child provided they are under 19, or 24 if a full time student, for at least five months of the year and they do not provide more than half their own support. If the child is permanently and totally disabled there is no age limit.

The child must be younger than the taxpayer and spouse in the event of a 'married filing jointly' return. Keep that in mind should you decide to marry someone much younger than yourself!

Money that you receive as child support is not a taxable event. The recipient does not declare it and the payer cannot claim it as a deduction. Alimony on the other hand is taxable to the recipient and is a tax deduction for the payer. The amount of alimony received goes on line 11 of form 1040 and the amount of alimony paid goes on line 31. Alimony is a component of adjusted gross income, a number that is used to determine many entitlements.

Beware of what I call 'hidden alimony.' One example may be the premiums the ex-spouse paid on court ordered life insurance for your benefit. Also certain expenses paid for housing that were not in his name, such as property taxes on a house that was not in his name or was in both names with rights of survivorship.

One question that I am often asked is, "To what extent can I deduct legal fees and other costs incurred with my divorce?" The answer is that legal fees for the divorce itself are not deductible however legal fees post divorce may be if they are paid for services rendered in an attempt to recoup taxable income. In other words if you had to go to court because your ex did not pay alimony for three months, those legal fees may be deducted on schedule A, miscellaneous itemized deductions subject to the 2% floor of AGI. If you retain a financial planner to do projections for you on a possible settlement, then that money may be a deduction as well, again subject to the 2% floor on AGI. For those who wonder what that means here is a clear example. Your adjusted gross income is $100,000 and therefore the first $2,000 of deductible miscellaneous expenses is for your own account. If you paid a financial planner $2,000 and a lawyer qualifying expenses of $2,000 then only $2,000 would be deductible although each expense has to be claimed.

The non custodial parent may claim a child tax credit in the years that they are entitled to claim the dependency exemption provided all other conditions are met.

If you changed your name after the divorce, you should notify the Social Security Administration and file a form SS-5. This will prevent possible delays since the name on the tax return will not match the Social Security number of the flier. It will definitely create a delay in e-filing a return.

If you are not used to filing your own taxes you may wish to use a professional and plan to spend some additional time going over all the facts.

© 2010

1 comment:

Penny stock newsletter said...

I believe that a divorse is very very messy business.