Filing taxes following divorce

Like many Wisconsin residents, you may view tax preparation as an unpleasant chore. But if you recently have divorced or are now going through divorce, you may find yourself facing new challenges this tax season. Things you previously took for granted, like your filing status and dependent deductions, may prove fertile grounds for confusion. Here are a few things you need to know when preparing your taxes after a divorce.

One area of confusion may be the appropriate tax filing status to use. The relevant date is December 31. If you were still married on that date, you must file either as married filing jointly or married filing single. If your divorce was final by December 31, you may file as head of household, provided you meet some specific requirements relating to your living arrangements during the tax year, or as single. There may be tax advantages to filing as head of household, so ask your attorney or tax advisor if you meet the requirements.

Another source of confusion is dependent deductions. Unless the former spouses reach an agreement to the contrary and execute an IRS Form 8332, the deduction belongs to the parent with whom the children resided for more than half the year. Note that if you pay child support, the payments you make are not deductible.

While you may be taxed on alimony payments that you receive, any property that is transferred to you pursuant to the terms of a divorce is not taxable, either as income or as a gift. The property retains its original tax basis, which you will use to calculate any taxes owed when you later sell or dispose of it. Given the potential tax implications of divorce, your best bet may be to consult with a qualified attorney or tax advisor before you file.

Source: Huffington Post, “Preparing Your Taxes In The Year Of Divorce,” Kathleen B. Connell, March 21, 2013