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How your divorce will affect your taxes

Tax season is here. This time of year is usually unpleasant and burdensome, but it becomes even more complex if you are getting a divorce. With the additional complications of ending your marriage, you likely have a lot of concerns and questions about your taxes.

It is crucial to understand how the divorce affects your taxes because if you make any mistakes, you may face penalties or an audit. Here are some essential divorce tax tips to consider. 

Child exemptions and credits

If you are divorcing, one tricky issue for your taxes is figuring out who is going to claim children for any applicable tax credits or dependency exemption. Generally, whoever is the custodial parent on the divorce decree is able to claim the exemption. However, if you are going through a divorce, you may be able to work something out with the other parent. Whatever you do, make sure both of you do not attempt to claim your child because it sends a red flag to the IRS and may trigger an audit. 

Filing status

You will also need to figure out your filing status. You have various options during a divorce. If the court issues the divorce decree during the tax year, this will directly impact whether you can file as married or single. If your divorce is not final, you may be able to file as married filing jointly or separately. On the other hand, if your divorce was finalized before the New Year, you will likely need to file as single or head of household. 

Retirement assets

Make sure you draft a qualified domestic relations order for any retirement plans you are dividing. A QDRO helps you avoid any additional tax penalties for early withdrawals. You should write a QDRO with the help of an attorney and get a judge to sign it. 

For specific advice regarding your divorce and taxes, talk to an attorney.

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