Your family circumstances directly impact your tax obligations. When you get married or have children, what you pay in taxes will likely change. You qualify for exemptions, tax credits and write-offs based on your family and personal circumstances.
When you divorce, income tax obligations will change again. It is all too easy for someone to overlook the biggest tax implications of their divorce when filing an income tax return mid-divorce or the year after their divorce.
There are a couple of significant changes to be aware of when considering divorce and filing your income tax return during and after your divorce. What are the biggest changes to your tax circumstances?
You may file as head of household
During your marriage, you and your spouse will likely have filed tax returns together. The year following the finalization of your divorce in court, you will be able to file your return as the head of your own household. There are some tax benefits that come from securing this status. Your standard deduction is higher as the head of a household than it is as a single person.
You may have to discuss child tax credits
Child tax credits are easy for married parents to manage, but they can be a complicating factor for divorcing parents. Only one of you can claim the children for the purposes of tax credits and write-offs.
Typically, your parenting plan will explicitly discuss which parent has the right to claim the children for tax purposes. Sometimes, one parent will claim the children every year. Other times, parents alternate. In families with numerous children, they might even split which children each parent claims.
Especially with advance payments of child tax credits in 2021, it is important to verify that you claim the children only when appropriate. You should also update the withholding documents with your employer so that you don’t wind up with a surprise bill when you file.