Divorce affects you in so many ways: your health, wealth, emotional and spiritual well-being. Just to name a few. We talk about all the things because they ALL matter. Today we’re talking about taxes, because as not fun as they are, taxes matter too.
Divorce can have an impact on your tax standing in good ways and bad. In ways you might not even think of. It’s wise to deal with them now, at whatever stage of the process you’re in.
Our best piece of advice: get help from a tax preparer to make sure you know how your divorce impacts your tax situation. If you can’t afford to hire one, you may qualify for Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE).
The IRS also offers free online tools to make it easier to do your taxes.
Here’s an overview to get you thinking:
#1 The Internal Revenue Service only cares about you 1 day a year. Usually.
It’s true. For 364 days a year (365 in a leap year), the IRS really doesn’t care about you. Your marital status that is. That’s because for purposes of your status for tax filing, the only day that counts is December 31st.
It works like this: You could be married all year long but if your divorce decree is granted on December 31st, for IRS purposes you weren’t married that year. On the flip side, if you were single all year but those wedding bells rang before the ball dropped in Times Square, you’re married to the IRS (well, you know what we mean).
And “divorced” is not the same as separated. Even if you lived apart from your spouse for all 365/366 days, if you don’t have a final judgment of divorce or separate maintenance that year, you’re still considered married.
These rules apply all the time. Except when they don’t. Say what?! Yes, exceptions to the rule abound with the IRS too.
Knowing your marital status is the first step to figuring out your tax filing status. Even then, you’ve got more than one option on how to file. But you have to start with the “simple” task of figuring out whether the IRS considers you married or not.
#2 You might qualify for Innocent Spouse Relief, or another one of those fancy IRS terms.
During this time, it’s normal to start questioning your spouse’s behavior in other areas. I’ve spoken with a lot of women who were worried their spouse may have done something wrong on their taxes. “If he would do this, maybe he did that too.”
Let’s be clear - we are NOT suggesting your spouse did anything improper. But if you’re worried, it’s worth doing a little investigating. Ask a really skilled friend or a new tax preparer (not the one who filed your return) to do a little look-see.
If the returns are clean, you can check one worry off your list.
But if your fears are confirmed, you might look into applying for Innocent Spouse Relief. If you qualify, you can be relieved of responsibility for paying tax, interest, and penalties if your (ex) spouse improperly reported or left items off your tax return. And that’s a big deal.
The criteria to qualify is pretty strict. But the IRS does offer a couple other alternatives. This publication from the gov is a good place to get started and also has the forms you’d need to fill out.
#3 The IRS does try to provide guidance to divorced folks.
Here are a few more publications on other issues you need to think about, like determining your tax status, figuring out which benefits you can claim, and dependency exemptions.
After reading them, you’ll either have all your questions answered, or run screaming to the nearest tax preparer.
Either one is OK in our book. Because the most important thing is that you know what you don’t know. Knowledge is power and knowledge can save you major money when it comes to your taxes.