Tax Time after Divorce

     Going through the financial aspects of a divorce can be traumatic enough. However, what do you do when tax time rolls around and you are facing a mountain of paperwork and rules and you have no clue where to begin? There are so many ins and outs to filing when you are married or divorced, how do you ever make sense of all of the rules? Here are some tips to help.


1. FIGURE OUT HOW WHO WILL USE THE TAX EXEMPTION.
 
According to Sharon Drew and Gregg Herman, shareholders in the Milwaukee, Wisconsin, law firm of Loeb, Herman & Drew, S.C., which practices family law, this is a critical point. They write on the Law Offices of Raggio & Raggio, P.L.L.C., Web site, that the parent with custody of any children is the one that gets to claim the dependency exemption.  

This can be a sticking point with many couples going through divorce. Drew and Herman recommend settling on custody payments as a point of negotiation, meaning if the person paying for child support and/or alimony makes all payments in full and on time throughout the year, allow them to take the exemption, almost as a good faith gesture. San Francisco attorney Harry Gordon Oliver II, agrees that the parent paying a significant amount in support should be able to claim the child. 

“The parent providing more than 50 percent of the support should be entitled to claim the child as a dependent,” he said. “However, it’s important to note that a dependency deduction may be apportioned by the court.”  

If this is not something settled in the beginning of the divorce process, you may find that you will have to battle out in litigation, which costs more money in the end. If you have more than one child, you can also each claim one of the children to keep things fair. However, it is also important to remember not to waste the exemption if one of the parents does not qualify, either because of too much or not enough income. If a parent filing as a single person makes less $6,400 per year or less than $8,250 per year filing as head of household, they do not make enough to take the deduction. Adversely, if one or both parents make more than $114,700 as a single person or $143,350 as head of household, the exemption is wasted and pointless.  


2. FAMILIARIZE YOURSELF WITH POTENTIAL DEDUCTIONS.

There are so many different things than can be deducted from your return; it is hard to know what you can and cannot take. For example, many people do not realize that they can deduct some of their attorney’s fees from a divorce. For example, if your attorney assists you with tax, retirement or other forms of financial planning, you may be able to utilize a percentage of their fees as a deduction. Ask your tax preparer or a tax professional about whether this option is available to you.