Divorce Tax Tips that Will Save You Big

Being a newly divorced, former tax preparer, I knew completing my tax return this year would be very different than in previous years. Rules regarding divorced and separated individuals are complicated, especially if you have kids. If you are not willing to put in the time, preparation, research, and diligence to do it yourself, you should seek out an experienced tax professional to help, at least for the initial year of your divorce.

But if you're like me and don't want to pay someone to do this for you, the following strategies should help. But please, get yourself a copy of Publication 504 (Divorced and Separated Individuals) and get very familiar with it before you start. It's available at www.irs.gov or at any IRS Taxpayer Assistance Center. And you must commit yourself to put in the time required to research all the options, not just those highlighted here. If you're not scared off yet, let's get started.

Filing Status

Generally, divorced people will file as Single. However, if you are divorced and at least one of your kids lived with you, you are a custodial parent and will most likely be able to file as Head of Household. The Head of Household status will almost always result in a much lower tax bill, so don't overlook this.

Separated people can file as Married Filing Separately or Married Filing Jointly. Married Filing Jointly is almost always the most beneficial status. The catch is that both you and your estranged spouse must sign the return. So if you just cannot be in the same place with each other you might have to file Married Filing Separately, which is the least beneficial filing status.

Dependents

Generally, the custodial parent takes the exemption for the children who lived with them. But check your divorce decree to see if it specifies otherwise. Non-custodial parents can claim one or more of their children, either by decree or consent of the custodial parent (Form 8332).