Kansas Family and Divorce

Taxes and Divorce Top Ten List

As the list states, seek out a tax professional.  I am a domestic attorney, not a tax professional and I don't give tax advise.  However, Ullman & Allen Family Law Forum provided a great taxes and divorce top ten list sometime back.  Since each one of the items on the list may affect you in a divorce, please go and check it out.

How to Claim the Exemption for Child of Divorced or Separated Parents

Attached you will find a link to a PDF of the IRS Form 8332.  Use this form to allow the non-custodial parent the right to claim the dependency exemption for federal taxes. 

IRS Form 8332

If you have any questions, I would urge you to talk to your own attorney or your tax professional.

Tax Exemption for Child

There is always a lot of discussion and cussing when it comes time for the question of tax exemption for the child(ren) in a divorce.  Usually the question or comment I get the most is,  I pay the child support, I want to take the deduction.  Of course one of the best places to look for such information is the IRS.

If you pay child support, are you allowed to deduct anything on your taxes or claim the child as an exemption?

Nothing can be deducted for the child support payments.  Child support payments are neither deductible by the payer nor taxable income to the payee.  You may be able to claim the child as a dependent.  Generally, the custodial parent generally is treated as the parent who provided more than half of the child's support.  This parent is usually allowed to claim the exemption for the child if the oether exemption tests are mets.  However, the noncustodial parent may be treated as the parent who provided more than half of the child's support if the custodial parent signs a Form 8332.  Release of Claim to Exemption for Child of Divorced or Separated Parents. or a substantially similar statement.

IRS Publication for Divorced or Separated Individuals

Here is the IRS publication concerning taxes and divorced or separated individuals.  Click  Download p504.pdf to download the IRS publication 504 in PDF. 
   

Divorce and Uncle Sam?

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.