Thoughts of spring are beginning to push their way into people’s minds, much like early blooming flowers pushing their way through melting snow. The annual rites of spring include more than chirping birds and blossoming buds, however: as every Bethesda resident knows, spring is also the time when Maryland state tax and federal income tax returns are due.
If you’ve recently been divorced or are considering divorce, tax returns can be even more daunting than they are normally. And those returns can be more important than usual for recently divorced parents and for people with significant financial assets.
Avoiding pricey errors
A recent news article contained a list of common, costly mistakes for divorced people to avoid when filing their tax returns.
- Unmatched names: If you changed your name after your divorce, be sure that the name on your tax forms matches the one on your Social Security card. If they don’t match, expect a rejected return or delayed refund.
- Tax status: your Dec. 31 marriage status determines your tax-filing status for all of 2020. If your divorce wasn’t final by then, you and your ex (or soon-to-be-ex) must agree on filing separately or jointly.
- Divorced parents: you have important filing decisions to make on filing as single or as “head of household.” It can make sense for many newly divorced people to seek advice from a tax professional on which course is best to take in their circumstances.
- Dependents: the IRS allows just one parent to receive the child tax credit. Typically, if a parent has majority physical custody, he or she claims the credit – but there are exceptions. If you have kids and are thinking of getting a divorce, this can be an important topic to discuss with a family law attorney regarding the structuring of a divorce settlement.
- Spousal support: don’t forget that the 2017 tax cut eliminated the longstanding deduction for spousal support (alimony).
- Tax break: if you and your former spouse sold your house as part of a divorce, you might be eligible for a deduction of up to $500,000 as a joint filer and up to $250,000 as a single filer from taxable gains on the sale.
It can also be worth your while to discuss with a tax professional asset transfers and what to do with retirement funds in a divorce.