If your divorce was finalized last year, there are a number of special considerations to keep in mind when filing your taxes for 2016. If you're divorcing this year, it's essential to be aware of them for when Tax Day rolls around next year and to consider the tax implications of your decisions as you and your spouse hammer out a divorce agreement.
Most significant life changes are reflected in your income taxes. Divorce can have a big impact on how you file your tax returns. Mistakes -- even innocent ones -- can bring penalties and fines.
If you were divorced by the last day of the year, you'll either need to file as single or head of household. To be considered a head of household, you must have had primary custody for at least one child for over half the year. If your divorce isn't yet final and you and your spouse are already splitting custody of the kids, check with your tax professional on what tax filing status to use.
It's helpful if your divorce settlement specifies which parent claims the children as dependents. Sometimes, each parent will claim the exemption for one child. Other times, they will trade off claiming the exemption each year. Sometimes, it's determined that it's best for the spouse with the higher income to take the exemption. It's essential that you don't both claim the same child as a dependent in the same year.
Deductions for mortgage interest as well as real estate taxes can be substantial. If you and your spouse are keeping the home for the time being and sharing the mortgage and taxes, you'll need to reflect the share you paid on your tax return. As with these other issues, it's best if they are included in your divorce agreement so that there's no confusion.
These are just a few things to be aware of when you file your tax returns in the year following your divorce. If you're receiving or paying alimony, that will also need to be reflected. Alimony payments and the other reporting we've discussed need to be coordinated with your ex to ensure that there is no duplication or inaccuracy that will get the Internal Revenue Service's attention.
It's wise to have sound financial and tax advice as well as an experienced family law attorney in your corner during your divorce proceedings. While these advisors may seem like an expense you can't afford, they can save you considerable money and headaches in the long run.
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