Financial mistakes are easy to make even when everything in your life is moving smoothly. When you’re in the middle of a divorce and dealing with taxes, the financial mistakes can get bigger. Here are two mistakes involving income taxes you don’t want to make while getting divorced.
1. Don’t forget to talk about last year’s taxes with your spouse.
Your filing status is determined by your marital status on the last day of the tax year. If you are still in the middle of the divorce process, you and your spouse should try to put aside your differences long enough to determine what makes the most financial sense for you both.
There are distinct disadvantages to using the “married filing separately” category. These include a higher general tax rate, a smaller alternative minimum tax, the inability to take the earned income credit and smaller capital loss deductions. Put aside your conflicts with your spouse for a while to focus on the bigger financial picture and consider sharing this last tax return if it benefits you both.
2. Don’t forget to determine who gets to claim the children in the future.
One of the biggest tax breaks parents get is through their dependent children, so this is not a subject that you want to let slip when you are settling your divorce.
If the divorce decree doesn’t state otherwise, the parent with primary physical custody usually claims the children on his or her taxes. However, the noncustodial parent can claim the deduction if the either the divorce decree allows it or he or she provides half of the children’s support during the year.
Without the divorce decree, however, you could end up fighting with your future-ex over who gets the deduction, and only the first parent to file can claim it.
Some couples choose to let the higher wage earner take the deduction, while some allow the lower wage-earner to claim the deduction and get the earned income tax credit in order to get the refund. Many couples choose to alternate who gets to take the deduction by the year unless physical custody changes. Talk it over with your spouse and see if you can come to an agreement.
For more tips on how to stay on top of the financial issues when you’re going through a divorce, talk to your family law attorney today.
Source: IRS.gov, “Publication 504 Main Content,” accessed Feb. 01, 2017