Tax Mistakes to Avoid During Divorce
Reasons to consider filing your taxes separately from your spouse:
- You don't trust your ex. When you sign a joint return, you can be equally liable for all taxes, penalties and interest owed. If your ex-spouse doesn't pay, the IRS can come after you for the whole amount. However, you might be able to claim innocent spouse relief if your spouse greatly understated his or her income and you had no way of knowing that when you signed the return.
- Your ex owes back taxes, back child support from a former marriage or has defaulted on federal student loans. If you file jointly under such circumstances, any refund you may be entitled to may be put toward your ex-spouse's debts.
- One of you has a low income but very high deductions. In this case, it may make more financial sense to file separately.
- Earned income tax credit (EITC)
- Child and dependent care credit
- Adoption expenses credit
- Hope and lifetime education credits
- Qualified tuition deduction
- Student loan interest deduction
- Ability to deduce some of your Social Security benefits
- Unless there is an agreement or order stating otherwise, the custodial parent – that is, the parent with whom the child lives -- normally takes the dependency exemption when you file separately.
- The custodial parent can sign a formal release enabling the non-custodial parent to claim the child. This often makes sense if the noncustodial parent earned the most income during the year.
- The dependency exemption cannot be divided, even if the children lived with each parent one-half of the year. Only one parent can claim the exemption for each child.
- Unlike with alimony payments, child support payments are not deductible to the parent who makes them, nor is it treated as taxable income of the parent who receives them.
- You must put your spouse's name and Social Security number on your return, so the IRS can match up both your returns to see if there are any discrepancies.
- You either both have to itemize or you both have to take the standard deduction.
- If you do itemize, coordinate who takes which deductions that you normally would have taken together as a couple.
- If you file jointly, decide before filing your return just how you'll divvy up the refund or the tax bill, and consider put any such agreement in writing or make it part of a court order.
