Filing Status: File a new W-4 form with your employer to increase or decrease amount withheld from paycheck. If you were separated but your divorce was not finalized before the last day of 2018, you can still file a joint return. This is likely to save you money rather than filing as a single taxpayer. After you are divorced or legally separated, filing as head of household also deducts $6,000 more than filing as a single taxpayer. To file as head of household, you must have custody of a dependent and be financially responsible for most of your home.
Filing Name: File under your married name to potentially receive your refund faster if your name has not been legally changed. If your return name is different than the name at the Social Security Administration, your return will likely be delayed. Notify the SSA of your name change as soon as you decide, to prevent any confusion on your return and to get any refund as quickly as possible.
Alimony: Alimony was deductible before the Tax Cuts and Jobs Act was passed. However, if a divorce agreement was in place after December 31st of 2018, alimony is not deductible any longer. Furthermore, the alimony is not filed as income to the person who receives it. Child support follows the same guidelines and is not counted as income, nor is it tax deductible when paid.
Claiming Children: The parent with whom the children lives for most of the year is the only one who qualifies for the Child Tax Credit. However, the other parent can still claim the credit if the parent with custody agrees not to claim them by signing Form 8332. If several children are involved, the parents can divide the children to claim. The same child cannot be claimed by both parents without the possibility of an IRS audit. To add to that, even if you are not the custodial parent, medical bills for a child can be included in your medical expense deduction.
Know Your Assets: For tax purposes, it is essential that you understand the implications of transferring an IRA. If you divorce, your IRA accounts may be divided between you and your spouse, as dictated by the divorce agreement. In this case, your accounts can be transferred to your ex-spouse through the court order, by either changing the name on the account or by transferring the assets from your account to your spouse’s account. This transfer will not have any tax ramifications or penalties if completed according to a court order.
Divorces are known to be confusing, stressful, and expensive. Don’t keep the burden of making all of the financial decisions on yourself. With a CPA you trust, you can rest assured that your finances are being handled even in the most difficult times. SME CPAs will be here for you through the good times and the worst times. Give us a call so that we can help with this burden.