If you involved your tax accountant or paid preparer in some of your divorce decisions, good for you. Doing so should prepare you for the transitions that will likely take place in your tax picture during the next few years. If not, you may be wondering how the divorce will affect each spouse's tax liabilities. Filing taxes after a divorce can be complicated and is largely dependent on when the divorce became final and whether there are children involved.
Check to see if you really are single by Internal Revenue Service (IRS) standards. If the divorce is not yet final, you are not allowed use the single filing status. That may not be a bad thing if you have custody of one or more children and lived apart from your spouse during the last six months of the tax year, in which case you can use the advantageous Head of Household filing status. If you separated late in the year and/or had no dependent children, you must choose between married filing jointly with your spouse or separately. Many couples opt to file one last return jointly, because it results in the smallest tax bill. However, it also results in both parties being liable for 100 percent of any future tax due as a result of an IRS audit. If your spouse is unable or unwilling to pay any part of the resulting tax liability, IRS will hold you responsible for the entire balance.
Keep copies of tax returns for all "open" tax years, and the documents used to create those returns. If you did not get copies of your jointly filed returns during the divorce process, do so now. Tax returns are "open" to audit or other future action by IRS for three years after they were due or after they were actually filed, whichever is later. Establish a habit of keeping copies of all future returns and backup materials for at least four years after the end of the tax year. You may need them for a variety of reasons, including loan applications and college financial aid.
Fill out and file a new W-4 form with your employer, reflecting your post-divorce tax filing status. Do this as early as possible in the year you expect the divorce to be final, so federal and state tax will be withheld at the correct rates. If you don't remarry within the same calendar year, you will be filing as either single or head of household, depending on whether or not you have dependent children. To be sure you will have a healthy refund coming every spring, you may want to consider claiming one less dependent on your W-4 than you will be claiming on your tax returns. Don't forget to file Form SS-5 with Social Security for any family member whose name was changed in the divorce process. Neglecting to do so will result in refund delays and other unwanted complications with IRS.
Remember to claim received alimony as income and paid alimony as a deduction. You may need to check your decree to know which payments were alimony or child support. Child support is neither taxable nor deductible. IRS considers child support to be paid first, followed by alimony, if more than one type of payment has been awarded. If the non-custodial parent pays $4,000 during the year and $3,600 is the annual child support amount ordered by the court, for example, the first $3,600 is considered child support. This is true even if all of the checks were labeled "alimony."
Divorced parents with decrees and agreements that were effective prior to 2009 may continue to use copies of the decree to grant child tax exemptions to the non-custodial parent.
Things You'll Need
Previous tax returns
Social Security form SS-5
IRS form 8332 if you have children
Divorce decree or separation agreement