Divorced and Doing Your Taxes?

USING TAX SOFTWARE HAS MANY BENEFITS          

Both TurboTax and TaxCut will help you find and maximize deductions and will walk you through how to deduct mortgage interest, charitable donations, education expenses and medical expenses, for example. In fact, TurboTax covers more than 350 possible tax deductions and credits. The software will also help you complete whatever forms are necessary to qualify for each deduction.           

 Using either the TurboTax or TaxCut software package, you can easily import your W-2 or 1099 information, plus import your financial data from Quicken, Microsoft Money Plus, or another popular personal finance management program. Once your state and federal returns are completed, you can use the software’s built-in E-file compatibility to submit your returns directly to the IRS electronically, via the Internet. An additional fee might apply for using the E-file feature, depending on which software and version you use. Using E-file will decrease the amount of time it takes for you to receive your refund (which is typically less than 10 days).         

For most people who are recently divorced, the TurboTax Deluxe ($29.95) or TurboTax Premier ($49.95) edition of the software is most suitable. If you opt to use the H&R Block TaxCut software, the Premium+State+E-File edition ($69.95) will probable work best for you.            

When you purchase either the TurboTax or TaxCut software from a retail store, it comes with a printed manual, which will help you quickly get started using the software. Both software publishers also offer several ways to obtain additional support as you’re using the software and preparing your returns. If you opt to download the software, the manual is made available to you in the form of a digital eBook, and must be read on the computer screen or printed out.  


TAX IMPLICATIONS IF YOU’RE NEWLY DIVORCED              

Both TurboTax and TaxCut will guide you through the tax return preparation and filing process, but you must answer all of the questions posed to you by the software accurately. As you’ll discover when you use either software package, your recent divorce will have a tremendous impact on your tax liabilities, so it needs to be handled properly. This is something both software packages handle well.            

Assuming your divorce was finalized before December 31, 2007, in terms of the IRS, you’re now considered single and should file your tax returns accordingly. If you have kids living with you, you’ll probably want to file as “head of household,” which could reduce your taxes and entitle you to a bigger refund.            

According to the TurboTax tax experts, “To qualify as ‘head of household,’ you must pay at least half the cost of keeping up the home where you live with your unmarried child, grandchild, stepchild, adopted child, foster child, dependent child or any other dependent family member.”            

If you’re the custodial parent of your kids, you’re also entitled to a tax deduction for each child, which the TurboTax or TaxCut software will help you calculate and incorporate into your returns. Likewise, the software will help you determine how your alimony payments (whether you’re receiving them or paying them) will impact your overall tax liabilities. The tax benefits are typically better if you’re paying alimony, as opposed to receiving it. However,  these payments must be spelled out in a divorce decree.           

It’s also important to understand that child support payments (whether they’re being paid or received) have no impact on your taxes, which is again something the tax preparation software will help you sort out.