Assisting a divorced taxpayer involves careful finesse relating to multiple issues. There are many misconceptions about preparation of tax returns following a divorce. This often leads to inaccurately filed tax returns.
Fortunately, some income tax matters are resolved in the taxpayer’s advantage. A knowledgeable IRS Enrolled Agent (EA) provides useful services to eliminate confusion and accurately resolve tax filing with all available tax credits. EA continuing education requirements assure that those with EA certification remain thoroughly trained.
The first concern of recently divorced individuals is filing status. The marital status of an individual on the last day of the year determines filing status for the entire year. Anyone with a final decree of divorce or legal separation agreement on December 31 is considered unmarried.
Married individuals may file jointly or separately. A married individual may only file as Head of Household when considered unmarried for filing status purposes. This requires the taxpayer to have a qualifying child, pay for more than half of household costs for the year, and have lived separate from a spouse for all parts of the last six months of the year. Obtaining assurances that taxpayers are not deceptive in claiming these circumstances for Head of Household status is part of the training received in an enrolled agent ethics course.
The greatest confusion among divorced individuals involves dependent children. A tax enrolled agent knows that the divorce decree or separation agreement is the governing document in these cases. It usually specifies which parent is granted a dependency exemption for income tax purposes. If the document is silent on this matter, the parent with custody for more than half of the year is considered the custodial parent and claims the child as a dependent.
Having a child as a qualified dependent also requires that the child not provide more than half of his or her own support and be under age 19 at year-end (or age 24 if a full-time student).
The non-custodial parent claims the child as a dependency exemption if the divorce decree or separation agreement so specifies. In addition, the custodial parent can release the exemption to the non-custodial parent by filing Form 8332 with the IRS.
The custodial parent can still file with Head of Household status without claiming the child as a dependent when the dependency exemption is allowed for the non-custodial parent. The non-custodial parent cannot claim Head of Household filing status despite being entitled to the dependency exemption for the child.
In addition, the non-custodial parent is not entitled to the earned income credit or the child and dependent care credit. A non-custodial parent taking the dependency exemption is entitled to the child tax credit. However, the parent entitled to the dependency exemption is entitled to these credits if that individual is the custodial parent.
Following the multiple steps required to arrive at accurate tax returns is a basis for tax professionals to annually receive continuing education tax training.