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Filing a tax return during or after a divorce

Tax time is quickly approaching and if you are going through a divorce, you may have some questions about how to file your taxes.

One of the first questions people ask is how to file. Pursuant to the Internal Revenue Code, if you are still married on December 31st, you have to file as married that year, whether it be jointly or married filing separately. If you are not married on December 31st, you cannot file as married. Don't forget to ask your accountant about whether you are eligible to file as Head of Household. This may be addressed in your Separation Agreement or Divorce Decree, so make sure you know what your court order says before discussing this issue with your accountant. 

Another question that is frequently asked is about claiming the children as dependents while a divorce is pending or contemplated. During the pendency of a divorce, this is an issue that needs to be discussed by the parties and counsel to determine how to file. Oftentimes, it is best to discuss with your accountant all of the ways that you can file (jointly, separately, and the distribution of the children as exemptions) to determine which method is the most beneficial for the family, meaning which will result in the highest refund. The parties generally reach an agreement, or the court can weigh in, about what to do with the money. Some options may be that the refund is divided, used to pay down marital debt, or held in an escrow account until everyone agrees or the court holds a final trial.

The issue of claiming the children as tax dependents is something that is either negotiated and agreed upon in the divorce or dissolution process or the court decides. Under the Ohio statutes, the exemption goes to the residential parent unless the court determines that it is in the children's best interest for the non-residential parent to claim one or more of the children. The court will look at factors such as the potential of the reduction of taxable income for either parent, the ability to claim the child tax credit, and the compliance of the non-residential parent in the payment of child support. If the non-residential parent is not substantially current (usually defined as no more than $100 owed in child support at the end of the year), they are generally not eligible to claim the child or children even if it is their year under the final order. If divorced, the first thing that you should do in determining whether you should claim the children is to look at your divorce decree or separation agreement. If it is your year to claim one of the children, and your ex-spouse claims that child first, you will not be able to file electronically, as it will flag the social security number of that child. However, you should be able to file through the mail with a copy of the necessary court order.

Lastly, you should consider and discuss with your accountant whether you may claim deductions based on the payment of spousal support or the payment of attorney fees. If you are paying spousal support in Ohio or maintenance in Kentucky, you need to discuss with your accountant the tax deductibility of these payments. On the other hand, if you are receiving spousal support or maintenance payments, you need to discuss setting aside money or paying estimated taxes on this support. Unlike receiving W-2 income, taxes are not coming out of the income as it is paid and received; and therefore, you will owe taxes at the end of the year on the alimony payments that you receive.

Additionally, the IRS allows a deduction for attorney fees incurred in the process of attempting to produce or collect taxable income. As described above, spousal support/maintenance is taxable income. Therefore, if you are in the process of attempting to get a spousal support award, you may be able to deduct a portion of your attorney fees. You should discuss this with your accountant in enough time to get the necessary paperwork from your attorney about fees incurred during that tax year.

There are complicated tax issues related to divorce. It is helpful for you to discuss any questions with an accountant and your divorce attorney. 

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