Divorce or separation may complicate your taxes. Along with other family law issues, filing your taxes after your divorce or separation requires planning.
Divorce and taxes
Even if you started your divorce last year, the IRS will consider you married unless your divorce was finalized by Dec. 31. But if your decree was issued by the Dec. 31 deadline, the IRS will consider you unmarried for all of 2020 and you cannot file a married return.
You are considered legally married unless you have a court order that you are divorced or legally separated, even if you are living apart. You are no longer married if you were officially separated on or before Dec. 31.
If you are married under IRS guidelines, you may file as married filing separately. You can receive the $12,400 standard deduction or you may itemize deductions.
You must limit your itemized deductions like mortgage interest to your contributions. Spouses may divide medical expenses that were paid through a joint account.
Filing separately eliminates your claims to earned income and higher education tax credits and other tax breaks. But you may keep the entire refund and have no tax liability for your spouse’s mistakes or omissions.
Couples awaiting divorce can also file as married filing jointly jointly even if they live apart. The standard deduction is $24,800 and usually benefits couples where one spouse makes a higher income. It also provides eligibility for the Earned Income Tax Credit and the Child and Dependent Care Credit.
Couples may, if their divorce was final before Dec. 31, file separate returns as a head of household. The standard deduction is $18,650. This allows taxpayers to earn more income before they fall in a higher tax bracket.
If your divorce was not final by Dec. 31, you may file as head of household if you stopped living together in the first six months of 2020 and you paid over 50 percent for maintaining your home for the year. But you must have a child or other relative as a dependent.
The custodial parent may claim the children as dependents to reduce their taxes and receive the Earned Income Tax Credit and Child and Dependent Care Credit. The new Child Tax Credit is $2,000 per child under 17. The credit is refundable up to $1,400.
Divorce agreements should identify the custodial and noncustodial parent. Custodial parents may allow the noncustodial parent to claim the dependent, but they cannot reclaim that benefit until the following tax year.
An attorney can give you options addressing your financial needs. Lawyers may assist you with seeking a fair and reasonable agreement.