I have been looking for some good information on Divorce and Taxes and I found it. Below is a great article by Jessie Danninger with Rosen Divorce in North Carolina. And I have to give her complete credit for its content.
Divorce and Uncle Sam:
Things You Should Know When Filing Your Taxes
by Jessie Danninger
What is my filing status? (Married, Single, Head of Household)
Marital standing at year end
determines your filing status for the entire year. If you have a decree
of divorce or separate maintenance, signed by a judge, you should file
as single. Regardless of whether you have a signed decree you may be
able to file as head of household. Filing as head of household may
reduce your income tax obligation, but to qualify the following
conditions must be met:
-
You paid more than ½ the cost of keeping up your home for the tax year,
-
Your home was the main home for your child for more than ½ the year, and
-
Your spouse hasn’t been a member of the household for 6 months.
If you can’t file as single or head of household, then you must either file as married filing joint or married filing separate.
Should my spouse and I file as married, filing separate or married, filing joint?
Filing joint may provide some
tax benefits over filing separate. However, by filing separate the IRS
can’t hold you responsible for any unpaid taxes caused by your spouse’s
actions or omissions. The “innocent spouse” rule provides relief from
this responsibility in some cases.
Is alimony taxable?
In general, alimony is
taxable to the recipient (line 11 of the 2004 Form 1040) and deductible
to the payor (line 34a of the 2004 Form 1040). However, some couples
stipulate in their separation agreement that the alimony won’t be
deductible to the payor, or taxable to the recipient.
Is child support taxable?
No. Child support is neither
taxable to the recipient nor deductible to the payor. If the payor
owes both alimony and child support, but pays less than the total
amount owed, the payments apply first to child support and then to
alimony. If the separation agreement doesn't delineate separate
alimony and child support payments, general "family support" payments
are treated as child support for tax purposes, unless the alimony
qualifications are met.
Who gets to claim the dependency exemption for the children?
In general, as long as the
parents combined contribute at least ½ of the support of the child, the
custodial parent gets the dependency exemption for the child. If
custody is split or undeterminable, the parent who had physical custody
for the greater part of the year gets the dependency exemption.
Custodial parents can waive their right to the dependency exemption by
filing Form 8332.
Who gets to claim the Child Tax credit and the Household and Dependent Care credit?
Only the parent who claims
the exemption for the child may claim the Child Tax credit for that
child. Unlike the exemption, it can’t be traded. If you are the
custodial parent, you can claim the Household and Dependent Care credit
for the child even if you cannot claim the child’s exemption. If you
are the non-custodial parent, you cannot claim the Household and
Dependent Care credit for the child even if you can claim the child’s
exemption.
Are my divorce costs deductible?
In general, legal fees are
considered personal expenses, so they aren’t deductible. However,
legal fees paid to get alimony and legal fees regarding the tax effects
of divorce are deductible. The attorney must allocate fees paid for
deductible and non-deductible services; otherwise the deduction may be
disallowed. The allowed deduction is a miscellaneous itemized
deduction, which is deductible only to the extent that, in the
aggregate, the miscellaneous deductions exceed 2% of the taxpayer’s
adjusted gross income.
My spouse and I are using the married, filing separate filing status. Can I use the standard deduction if my spouse itemizes?
No. If spouses are using the
married, filing separate filing status and one spouse itemizes their
deductions, the other spouse must itemize as well.
Who gets the mortgage interest deduction and other itemized deductions?
If the marital home is owned
by one spouse alone, only that spouse may claim a mortgage interest
deduction. Deductible expenses that are paid out of separate funds,
such as medical expenses, are deductible by the spouse who pays them.
In general, deductible expenses paid out of joint funds are split 50/50
between the spouses, including mortgage interest. Mortgage interest for
property titled by the entireties can be claimed by whichever spouse
actually paid the expense.
Jessie Danninger is a financial analyst with Rosen Divorce. She assist
clients in all financial matters relating to divorce, including
property distribution, child custody, alimony and tax related issues.
She is a certified divorce financial analyst and CPA.