As you are aware, divorce changes many aspects of your life. While you may think that you have prepared for most of the changes your new status as single has brought, you may be overlooking a major transition - your status as a taxpayer.
The Internal Revenue Service anticipates that many American taxpayers may understandably be confused about their new filing status and prepared a publication regarding tax consequences for divorced individuals. To avoid getting audited, below are some salient points to remember when filing your 2016 taxes.
Important terms as defined by the IRS
- Divorce Decree - While the IRS recognizes this legal document between divorced parties, for purposes of taxation, a divorce decree or order isn't considered binding to the IRS.
- Filing status - Under most circumstances, your filing status is determined by your marital status on Dec. 31 of the year for which you are filing your federal taxes. When filing jointly, each spouse bears equal responsibility for all of the tax liability. This applies even when only one of the spouses earned income.
- Amended Filing Status - When one (or both) of the spouses files separate returns, they have three years from the date the separate return(s) came due to amend their tax return to joint status. But if both spouses file joint returns, neither can amend their separate returns after the day the joint return is due.
Who can claim the kids as dependents?
In most - but not all - cases, the custodial parent gets the exemption for the child(ren). Some divorce judgments reflect different arrangements agreed upon between the divorcing spouses. For instance, when there are two or more children involved, the parents may agree that one spouse claims one child and the other spouse claims one (or more).
Sometimes parents agree to alternate years claiming the kids. Dad my claim them in even-numbered years, while Mom gets them in odd-numbered years. The IRS has no problem with parents' private arrangements unless both attempt to claim the same child for the same tax year. Doing this can cause both parents to get audited. Also, any refunds will likely be delayed and potentially reduced.
Do I have to itemize now that I am divorced?
Married couples that file separately both have to itemize their deductions if one spouse itemizes. Now that you are divorced, this rule no longer applies. Feel free to file a shorter return without worrying about itemizing if this works out better for you.
I'm getting audited anyway. Now what?
Sometimes audits happen regardless of your best intentions. Try not to take it personally, but definitely take it seriously. Retain a skilled and experienced Michigan tax attorney who is familiar with complex tax cases involving divorced taxpayers to represent you in any dealings with the IRS.