By Mary Ellen Flynn, Attorney
Whether you are in the midst of a divorce, recently divorced, or divorced for several years, it is crucial to keep in mind how this might affect you at tax time and, most importantly, what mistakes to avoid.
As the 2022 tax deadline approaches, here are some major tax mistakes to avoid:
Mistake #1: Missing the deadline.
During the last couple of years of the COVID-19 pandemic, the federal government delayed the deadlines for tax returns. However, this year is back to the standard tax deadline: April 15th. And because April 15th falls on Good Friday and during Passover this year, the deadline is technically extended to the following Monday, April 18, 2022.
Despite the extra few days, do not wait until the last minute. Give yourself time to ensure you have all the information and documents you need to complete your taxes, especially if it will require cooperation with your ex or estranged spouse. Missing the deadline will lead to a penalty and cause you to owe more than you would otherwise.
Mistake #2: Filing Under the Wrong Status.
Your marital status on December 31st of the year determines your marital status for that entire tax year (as far as the IRS is concerned). If your divorce was not finalized as of December 31, 2021, you and your Ex will need to decide if you will file your 2021 taxes as “Married Filing Jointly” or “Married Filing Separately.” If your divorce was finalized by December 31st, consider if you want to file as “Single” or have the option of “Head of Household,” especially if you had primary custody of the child(ren) and paid for most of the home’s costs that year.
If you are unsure how to file, I recommend consulting with a tax professional to learn about what statuses you qualify for and the financial impacts of each.
Mistake #3: Using the Incorrect Name
The legal name on your tax forms must match what is registered with the Social Security Administration (what is on your social security card). If your name changed as part of your divorce, apply for a new social security card so that your taxes can reflect the change as well. Using the incorrect name will likely cause the IRS to reject your tax return and/or delay your refund.
Mistake #4: Not Having an Agreement on Which Parent Claims the Children as Dependents.
Claiming dependents affects your ability to qualify for certain credits, such as the child tax credit, educational credit, and childcare credit. The IRS has rules to determine which parent may claim the children (typically, the parent with majority physical custody). Still, some divorce settlements may agree to a different arrangement – such as the parents agreeing to alternate years. Make sure this is addressed as part of your case, that you are aware of the implications, and that both parents are on the same page about it.
Mistake #5: Failing to Keep Taxes in Mind for Asset Division
Generally, the assets transferred as part of a divorce do not have tax consequences. However, you may need to take specific steps to ensure the IRS treats those new assets correctly and doesn’t charge you a penalty when dividing or distributing them. To avoid paying taxes on money awarded to you from a retirement account, your attorney will advise you on what steps are required to ensure that. For example, to transfer assets from a 401(k) without incurring a tax penalty, you will need to submit a Qualified Domestic Relations Order (a “QDRO”) to be approved by the Court and then sent to the associated workplace account.
Mistake #6: Not Having an Agreement on Where the Refund Goes
If you and your estranged spouse are filing jointly, have a clear agreement about how you will split any tax refund you receive. The fastest and safest way to receive your refund is by providing a bank account’s information for a direct deposit – but be sure to use the correct account and routing numbers. Whether provided to receive a refund or make an electronic payment, incorrect account numbers can cause months of delay and possibly a penalty if the IRS is late in getting theirs.
Common Mistakes Across the Board
- Incorrect social security number. Just as with your legal name, this needs to be correct to avoid the IRS rejecting your return.
- Incorrect Mailing Address. One of the most common mistakes among Americans who file by mail (rather than electronically). Make sure you address it to the correct processing center.
- Math errors. Preparing your own taxes by hand requires a lot of calculations, and it’s easy to make a mathematical mistake. Double-check yourself carefully or avoid this problem by using tax software or hiring a qualified tax preparer.
- Missing forms. Include every form, supporting schedule, and document required for a complete tax return.
- Forgetting to make a copy of your return. In the future, you may need copies of your tax returns for a mortgage, other loan application, or audit by the IRS. You may also need your returns as part of discovery in your divorce or child support case. Experts recommend keeping a copy of each tax return for at least three years and depending on your circumstances, you may want to retain your copies even longer.
An attorney who specializes in divorce can advise you on the tax repercussions of many of the decisions you make during your case and will help to best protect yourself and your finances at tax time.
About Andalman & Flynn, P.C.: Founded in 1998 in downtown Silver Spring, Maryland, Andalman & Flynn has forged a distinguished reputation for legal excellence. The firm practices family law throughout Maryland and the District of Columbia, and represents individuals seeking disability benefits throughout the country. The firm focuses on cases that impact the rights of everyone, and are there for clients when responsive legal help is most critical. The firm has provided legal analysis on national and local television and radio, and their attorneys often testify before legislative bodies and are routinely invited to contribute to prominent legal publications. For more information about Andalman & Flynn, please visit the website at andalmanflynn.com or call 301.563.6685.