Marriage & Taxes:

Getting Ready for Single Parenthood in the Eyes of the IRS

Unfortunately, after a divorce decree has been finalized, many single parents will find that they are paying more income tax now than before while they were married. This is usually because rather than being able to file as married filing jointly, your client is now required to file as single or as head of household, either of which filing statuses rates are higher than when filing as married filing jointly. Thus the newly single parent finds him or herself paying more in taxes.

As a single parent, your client now carries all of the responsibilities they used to share with their spouse. All facets of financial planning now rest on their shoulders, including insurance, investments, income tax, retirement and estate planning. As their income tax is affected by their new marital status, so is their estate planning. They can no longer take advantage of the unlimited marital deduction when it comes to passing on their estate and will need to leave their assets to their children and/or their favorite charities, etc. Insurance, investments and retirement issues need to be addressed and are probably of even more importance to them now as they alone are the sole provider for themselves and possibly their children.

Choosing a Filing Status

  • Married Filing Jointly – if your client is not yet officially divorced, they may still use this filing status. This status provides them with the highest standard deduction of the filing statuses
  • Single – If your client does not have children or they are the primary provider for a child that lives in their home, and are unmarried, they must choose this status
  • Head of Household – If your client is unmarried and would otherwise file as single, they may get a lower tax rate and higher standard deduction by using this filing status instead of single if they provide a home for an unmarried child, a dependent parent or other dependent relative
  • Qualifying Widower – If your client's spouse died within the last year and they did not remarry plus they provide a home for a dependent child, they may use the Married Filing Jointly status.
  • Married Filing Separately – In a few cases, it may be beneficial tax wise for some married people to file separately instead of jointly.

Will it save your client more money to itemize rather than to take the standard deduction? The only real way to find out is to add up all their itemized expenses and compare that number with the standard deduction they are allotted for their filing status. If their deductions exceed the amount of their standard deduction then they should itemize. In order to itemize, they should save all of their receipts and records for anything that may be deductible.

Keep in mind that when it comes to claiming exemptions for children of divorced parents, generally the parent who has physical custody of that child for the greater part of the year is the one who is entitled to take the exemption for that child on their tax return. Exceptions to this rule are when a custodial parent signs a statement waiving the exemption for one or more years or a noncustodial parent contributed at least $600 towards the child's support for the year and there is a valid pre-1985 divorce decree that states that this parent is entitled to the exemption. In addition, child support payments are neither deductible by the payer nor taxable to the recipient. Alimony payments, however, are taxable to the recipient as well as deductible to the payer.