As with every other aspect of your life, separation and divorce impact your taxes. This is an area in which you should try your hardest to keep the lines of communication open and the emotions out. Do not assume that because you are separated that you have to file your taxes separately. Also, do not assume that if you do file separately that you will able to claim all the deductions and exemptions that you once did. The IRS does not care about your personal problems or that you and your (ex)spouse are unable to communicate. Make sure that you have all tax related issues settled and clearly stated in your separation agreement and or divorce decree.
The information contained on this page is for informational purposes only. Before acting upon or making any decisions based upon the information contained within this page, consult a tax professional experienced in matrimonial issues first.
How are you going to file your taxes? Determine the best way financially to do this. Normally filing a Married Joint Return will result in the lowest taxes. Do not look at a joint return as any kind of "attachment" to your spouse. This is strictly a financial situation. You would qualify for the Married Filing Jointly status if you are not yet divorced. You do not qualify for this status in the tax year you become divorced.
You may claim a child that does not live with you only if it is stated in your divorce or separation agreement or if mutually agreed upon. This would not apply if you and your spouse are filing a Married Joint Return (see above).
Under certain conditions, the amount of your legal and accounting fees paid during your divorce which can be attributed to maintaining or preserving income (not child support) may be tax deductible.
If you either pay or receive alimony/maintenance there are tax implications. Alimony/maintenance (not child support) is taxable to the recipient and deductible for the payer. Occasionally a dispute will arise as to how much alimony was paid/received. Sometime the IRS will question the alimony amounts. For that reason it is very important to keep good records. If you fail to keep adequate records you may lose the alimony tax deduction.
If you pay alimony you should keep the following records for at least three years:
If you receive alimony you should keep the following for at least three years:
- Original checks. Be sure to show on each check the month the payment represents.
- A list that shows the date, check number, amount and address where payment was sent.
- If you give cash obtain and retain a receipt signed by both the payer and the recipient.
You should be aware of the Recapture rule for alimony. It can get complicated so consult a tax accountant if you think you are impacted as either a payor or a recipient of alimony.
- A photocopy of the check or money order received.
- A list that shows the date, check number, amount of payment, bank account the funds are drawn on, account number against which the check is drawn on.
- A copy signed receipt with signatures of both payer and recipient for any cash payment received.
IRS Publication 504 states the following about the Recapture of alimony:
If your alimony payments decrease or terminate during the first 3 calendar years, you may be subject to the recapture rule. If you are subject to this rule, you have to include in income in the third year part of the alimony payments you previously deducted. Your spouse can deduct in the third year part of the alimony payments he or she previously included in income.
The 3-year period starts with the first calendar year you make a payment qualifying as alimony under a decree of divorce or separate maintenance or a written separation agreement. Do not include any time in which payments were being made under temporary support orders. The second and third years are the next 2 calendar years, whether or not payments are made during those years.
The reasons for a reduction or termination of alimony payments that can require a recapture include:
When to apply the recapture rule.
- A change in your divorce or separation instrument,
- A failure to make timely payments,
- A reduction in your ability to provide support, or
- A reduction in your spouse's support needs.
You are subject to the recapture rule in the third year if the alimony you pay in the third year decreases by more than $15,000 from the second year or the alimony you pay in the second and third years decreases significantly from the alimony you pay in the first year. When you figure a decrease in alimony, do not include the following amounts:
- Payments made under a temporary support order.
- Payments required over a period of at least 3 calendar years that vary because they are a fixed part of your income from a business or property, or from compensation for employment or self-employment.
- Payments that decrease because of the death of either spouse or the remarriage of the spouse receiving the payments before the end of the third year.
Is not taxable nor is it deductible.
EARNED INCOME CREDIT
You may be eligible for the earned income credit (EIC) if:
CHILD AND DEPENDENT CARE CREDIT
The above information is for the Tax year 2008. For more information on the Earned Income Credit see IRS Publication 596
- You have two or more qualifying children and your earned income was less than $38,646 ($41,646 married filing jointly)
- You have one qualifying child and your earned income was less than $33,995 ($36,995 married filing jointly), or
- You do not have a qualifying child and your earned income was less than $12,880 ($15,880 if married filing jointly)
If you paid someone to care for your dependent under age 13 or your disabled dependent or spouse so that you could work or look for work, you may be able to claim the Child and Dependent Care Credit on your tax return.
CHILD TAX CREDIT
To qualify for the Child and Dependent Care Credit you must:
Employment-related expenses that qualify for the Child and Dependent Care Credit include household services and expenses for care of the qualifying individual. Expenses of attending a daytime summer camp qualify for the Child and Dependent Care Credit if that is a reasonable means of providing care during working hours. However, overnight camp expenses do not qualify for the Child and Dependent Care Credit. A nursery school generally qualifies for the Child and Dependent Care Credit, though an elementary school does not qualify for the Child and Dependent Care Credit.
- Have paid for care expenses in order to earn taxable income. If you are married both spouses must work either full or part time. Spouses who are full time students or incapacitated are excepted.;
- Pay more than 50% of the household maintenance costs for a qualifying dependent;
- File your tax return jointly if married, unless the separation rules apply;
- Hire someone other than your child (under age 19 at the end of the tax year), your spouse, or a person you can claim as a dependent;
- Have qualifying expenses over and above any tax free reimbursements from your employer;
- Report on your tax return the name, address, and taxpayer identification number of the child care provider. If the care provider is a tax exempt organization the taxpayer identification number is not required.
Child and Dependent Care Credits are allowed for $3,000 of expenses for one dependent's care and $6,000 for more than one dependent's care.
In order to claim the Child and Dependent Care Credit you must maintain as your principal home a household for at least one of the following qualifying persons who live with you:
For more information on the Child and Dependent Care Credit see IRS Publication 503
- A child under 13 years of age whom you claim as a dependent;
- Your spouse, if your spouse is physically or mentally incapable of caring for himself or herself;
- A person who is physically or mentally incapable of caring for himself or herself regardless of age
If you have children who are under age 17 as of the end of the tax year, you can get a $1,000 tax credit per child on your tax return. A tax credit reduces your tax bill dollar for dollar, so three qualifying children, for example, can cut what you owe Uncle Sam by $3,000. The credit does not affect the exemptions you take for dependents. The credit is in addition to your exemptions. The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status:
INCOME TAX EVASION BY SPOUSE
To qualify for the Child Tax Credit you must meet these tests:
- Married Filing Jointly $110,000
- Married Filing Separately $ 55,000
- All others $ 75,000
For more information on the Child Tax Credit see IRS Publication 972
- The dependent must be a U.S. citizen or resident. You can claim your child, stepchild, adopted child, grandchild or great-grandchild. Under a new definition of a "qualified child," you can also claim the credit for siblings, step-siblings and half-siblings that live with you. Foster children qualify if they were placed with you by a court or authorized agency. To claim the credit, children must live with you more than half the year and must not provide more than half of their own support.
- You must report each qualifying child's tax identification number (TIN) (usually the child's Social Security number) on your return.
If your spouse knowingly cheated on your joint return to evade taxes, you might not be held responsible. Effective July 22, 1998 a new tax rule went into effect whereby if you are divorced, legally separated or have been living apart from your spouse for at least 12 months, and you were unaware that your spouse lied on your joint tax return, you can file papers that would compute your tax liability separately. If you have been audited and you believe this rule applies to you contact a tax specialist who has experience with this type of matter.