By Steve Julal
Whether you are single, Head of Household or Married Filing Separately, it’s time to take a look at your finances and the tax implications of your choices. The following tips help you save money while making sure you follow the law.
Filing a tax return
If you are going through a divorce you will need to gather and copy several years’ worth of personal tax returns. If your spouse has a business, you will want to review those business returns even if you didn’t sign them. You need to have access to all information.
File a separate tax return in order to separate yourself from bad decisions your spouse makes. This makes sure you avoid liability if she neglects to mention income or expenses on her return. If you did file jointly on previous returns and a problem resulted from those returns, find out about protection under Innocent Spouse Provisions.
What is the Innocent Spouse Provision?
A measure of relief built into the tax code that allows a person, if eligible, to avoid paying his or her spouse’s tax if it was reported incorrectly. The innocent-spouse rule applies to a spouse that can prove that he or she did not incur the tax bill and did not somehow benefit from the failure to pay.
Ultimately, this rule is designed to protect people from liability for taxes incurred as a result of evasive or dishonest financial behavior by their spouses, or from divorces where one person fails to pay tax on the income he or she earned and intends to leave the other spouse with the bill.
Who claims the kids?
In certain circumstances, you do not have to claim the child as a dependent to qualify for head of household filing status; for example, a custodial parent may be able to claim Head of Household filing status even if he or she released a claim to exemption for the child. This is very important because filing as Head of Household will typically result in a lower tax bill than filing as Single or, if you are not yet divorced, Married Filing Separately. To determine which parent can make certain deductions, keep track of the days and nights your children spend with you versus the other parent.
To qualify as Head of Household you must meet the following requirements:
- Maintain a household for your child (even if you do not claim the child as a dependent).
- Unmarried at the end of the year or living apart from your spouse for more than six months.
- The Household must be your home and generally must also be the main home of the qualifying dependent (i.e. they live there more than half the year).
- Provide more than half the cost of maintaining the household.
- U.S. citizen or resident alien for the entire tax year.
Can I write off alimony paid to Spouse?
If you were recently divorced and are paying or receiving alimony under a divorce decree or agreement, you need to consider the tax implication for your federal income tax return. Here are the general guidelines:
- Alimony payments received from your spouse or former spouse are taxable to you in the year you receive them. Because no taxes are withheld from alimony payments, you may need to make estimated tax payments or increase the amount withheld from your paycheck.
- Alimony payments you make under a divorce or separation instrument are deductible if certain requirements are met. Any payments not required by such a decree or agreement do not qualify as deductible alimony payments.
-Alimony is tax deductible, but child support is not. If you receive alimony, you must list it as income on your tax returns too. Remember that alimony must be paid in cash (or check) as opposed to being paid “in-kind” by paying for the other spouse’s expenses.
Understanding taxes is fundamental to understanding your overall financial picture,which in turn will minimize your federal income tax liability. At VAAS Professionals we believe in the success of all and we foster a great relationship to increase bottom-line and decrease tax liability. AT