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How divorce can throw a wrench in your tax returns

The IRS has some very interesting rules when it comes to reporting the income and assets of divorcing couples. Before you check the "married" or "single" box on your tax return, keep in mind that the IRS wants to know what your marriage status was on Dec. 31. If your divorce became final on Jan. 1, you must check the married box.

If you live in one of the nine community property states, those states treat both incomes as community property and you may have to include part of your spouse's income as your own for the part of the year you were still married.

You and your ex-spouse must also decide who is going to claim head of household - and take advantage of the greater deductions - for the part of the year that you were married. Generally speaking, if you paid for more than half of the housing costs for the year, and/or lived on your own for more than six months, and/or the children lived with you for more than six months, you can claim head of household.

You must also decide who is going to claim the tax write-off for the children. Usually the parent with whom the children live with the majority of the time will take the write-off. If there is shared parenting time and joint custody, some couples take turns claiming the children every other year.

Keep in mind when determining and agreeing to alimony and child support payments that alimony is deductible by the payer and must be claimed as income by the payee. Child support is neither of those things so you must be careful how you describe certain payments in the divorce decree. A mere sentence in your divorce agreement can reverse that order.

When dividing assets and property, the IRS can hit you unexpectedly. If you are awarded part of your former spouse's retirement account or 401(k) it's a good idea to roll over that money into a retirement account of your own so you do not have to pay penalties or fees on that money.

To avoid paying capital gains or losses on a property transfer you must complete the deal within a year of the divorce date unless the event is specifically detailed in the divorce agreement. In that which case you have up to six years for any property transfers.

  • Source: dailyfinance.com, "Don't Let Divorce Destroy You at Tax Time," Dan Caplinger, July 23, 2012
  • To learn more about his and other topics regarding your taxes, please visit our Massachusetts IRS lawyer page.

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