If your divorce has become final during 2020, there are some important points to be aware of, and to discuss with your CPA or tax preparer, before April 15 comes around again (or May 17th this year per the IRS deadline extension):
- Are you eligible to claim your children as dependents? This is usually clarified in the divorce settlement agreement, but that’s not quite enough. The IRS has a required form: Form 8332- Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. The must be reviewed, signed and attached to both of your tax returns. Go to www.irs.gov for a copy of the form and more information.
- Did you remember that you can alternate who claims your children as dependents from year to year? A child can be claimed as your dependent long as he/she is under age 19 (on Dec 31) and lives with you for more than half of the year, or is a full time student up to age 24.
- What status will you use to file your taxes? If you were divorced by 12/31, married filing jointly is no longer an option. You can choose between single and head of household. Check with your tax preparer to see which works better for you.
- Are you receiving or paying alimony/spousal maintenance?
Remember that alimony is taxable to the recipient and a tax deduction to the person who’s paying. If this is the first year you are receiving maintenance, and you haven’t been putting money aside for your tax bill, brace yourself for the shock, and start saving now. You can open a savings account for taxes, and have money transferred monthly from your checking account, to minimize this problem going forward. Discuss this with your tax preparer, to see if you need to make estimated payments during the year.
Child support is tax-neutral: it’s not taxable to the recipient, and it’s not tax deductible to the person who’s paying.
Your first tax return after your divorce, is just one more step on your journey to financial freedom.
