{"id":2944,"date":"2013-05-05T18:43:11","date_gmt":"2013-05-05T22:43:11","guid":{"rendered":"https:\/\/kerryhannon.com\/?p=2944"},"modified":"2013-05-05T18:43:11","modified_gmt":"2013-05-05T22:43:11","slug":"taxes-and-divorce-6-tips-for-women","status":"publish","type":"post","link":"https:\/\/kerryhannon.com\/?p=2944","title":{"rendered":"Taxes and Divorce: 6 Tips for Women"},"content":{"rendered":"

\"next-ave\"<\/a>My hairdresser was a mess last week. As she washed, rinsed and snipped my locks, she talked nonstop about her taxes. She\u2019s in her early 50s, with a child living at home, and in the middle of a nasty, complicated divorce. She told me that a whopping tax bill was the last thing she needed.<\/p>\n

Our conversation made me think that this month will be messy for lots of women going through a divorce. Tax season is difficult enough when you have a solid marriage; my husband and I inevitably get into arguments as we roll through how much we spent the previous year.<\/p>\n

But divorce can make tax prep particularly angst-ridden.<\/p>\n

6 Tax-Saving Tips About Divorce<\/strong><\/p>\n

If you were divorced in 2012 or are going through a divorce now, I\u2019d like to offer six quick tips that will help you avoid paying higher taxes than necessary and potential penalties. (Since the subject of taxes and divorce is tricky, I also recommend you go to the IRS\u2019 website, irs.gov, to get its\u00a0Publication 504: Divorced or Separated Individuals<\/a>.)<\/p>\n

1. Be sure to select the right federal tax filing status.<\/strong>\u00a0It\u2019s based on whether you were married or single on the last day of 2012.<\/p>\n

If your divorce was finalized by year-end, file your taxes as a single person or, if you had a child and qualify,\u00a0head of household status<\/a>; head of household offers more tax advantages than filing as a single person. Otherwise, choose \u201cmarried filing jointly.\u201d<\/p>\n

If you\u2019re not yet divorced, you generally have two options: married filing jointly or married filing separately. Usually it\u2019s better to go with jointly, advises Mark Luscombe, the principal federal tax analyst for the\u00a0CCH<\/a>\u00a0tax advisory firm based in Riverwoods, Ill. \u201cIt tends to lower your taxes,\u201d he says.<\/p>\n

(MORE:<\/strong>\u00a0Don\u2019t Let Your Ex Ruin Your Credit)<\/a><\/p>\n

2. Claim an exemption for your child if you\u2019re allowed<\/strong>. You may be eligible to lower your taxes by taking the dependent exemption for your son or daughter if you were divorced or legally separated last year. To do so, you must have been named the custodial parent in your divorce decree.<\/p>\n

If you were the custodial parent in 2012, you may also be eligible for the\u00a0child care tax credit<\/a>\u00a0andeducation tax credits<\/a>.<\/p>\n

In some cases, the custodial parent can give the dependent exemption to the non-custodial parent by filing the awkwardly titled\u00a0IRS Form 8332: Release\/Revocation of Release of Claim to Exemption for Child by Custodial Parent<\/a>.<\/p>\n

3. Don\u2019t run afoul of the tax rules for child support.\u00a0<\/strong>Neither you nor your ex can deduct child support payments you made. But child support you received isn\u2019t taxed as income, either.<\/p>\n

4. Avoid getting tripped up by the tax rules for alimony<\/strong>. If your ex-spouse paid alimony or gave you money each month to maintain your home and life, you\u2019ll probably owe taxes on that income. Your former spouse can deduct the payments. The rules are reversed, of course, if you were the one paying alimony in 2012.<\/p>\n

In general,\u00a0if you were legally separated\u00a0<\/a>under a decree of divorce or separate maintenance in 2012 and you and your ex weren\u2019t members of the same household when the alimony payments were made, the rules are the same.<\/p>\n

Keep in mind that the IRS is strict regarding what qualifies as alimony and when the person paying it can write off the payments. Cash, checks or money orders meet the alimony test, Luscombe says, but property does not.<\/p>\n

(MORE:<\/strong>\u00a05 Ways to File Your Taxes With Less Stress<\/a>)<\/p>\n

Moreover, if you and your husband continued to share a residence after the divorce and he gave you alimony, you\u2019ll owe taxes on those payments and he can\u2019t deduct them.<\/p>\n

5. Consider using alimony you received last year to fund a 2012 Individual Retirement Account.\u00a0<\/strong>You generally need \u201cearned income\u201d to contribute to an IRA \u2014 and alimony qualifies. IRA contributions for 2012 can be made until April 15. The Next Avenue article \u201cLast Call to Get Your 2012 IRA Deduction<\/a>\u201d has the details.<\/p>\n

6. Get up to speed on how the recent tax law could affect your 2013 taxes.<\/strong>\u00a0If you\u2019re in the middle of negotiating a divorce agreement, some of the provisions in the law could \u201csend you over a fiscal cliff of a different kind,\u201d Jeff Landers writes in his recent\u00a0Forbes.com blog<\/a>.<\/p>\n

Take the time to learn how the law might impact your settlement agreement and negotiate accordingly. It could save you some serious taxes, says Landers, the New York City founder of Bedrock Divorce Advisors, and author of\u00a0Divorce: Think Financially, Not Emotionally \u2014 What Women Need to Know About Securing Their Financial Future Before, During and After Divorce<\/em><\/a>.<\/p>\n

For instance, alimony you\u2019ll receive could bump you into one of the law\u2019s new higher tax brackets. If you\u2019ll file as a single person, any income over $400,000 will be taxed at the new 39.6 percent tax rate, up from 35 percent in 2012.<\/p>\n

Landers is encouraging his clients to consider an upfront lump sum in lieu of alimony. That way, the money won\u2019t be taxable to you or deductible by your ex.<\/p>\n

Landers\u2019 tip reminds me: If you\u2019re going through a divorce and don\u2019t have a financial planner, get one.<\/p>\n

(MORE:<\/strong>\u00a0Women and Financial Advisers: A Rocky Relationship<\/a>)<\/p>\n

Ask friends or relatives for recommendations or go to the \u201cFind An Advisor\u201d Search<\/a>\u00a0at the website of the National Association of Financial Advisors. Do an advanced search for a local adviser specializing in women\u2019s financial planning issues and divorce planning.<\/p>\n

After all, divorce and taxes can be a headache. Just ask my hairdresser.
\n\"Tips<\/p>\n

Kerry Hannon has spent more than 25 years covering personal finance for Forbes, Money, U.S. News & World Report and USA Today. Her website is\u00a0kerryhannon.com<\/a>. Follow her on Twitter\u00a0@kerryhannon<\/a>.<\/p>\n

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