If you were married for a long time and your ex-spouse always took care of completing the tax returns, April 15 may be a date you are dreading. Are you prepared to file on your own?
Whether you choose to hire a tax professional (look for either a certified public accountant (CPA) or IRS Enrolled Agent (EA)) or decide to prepare your taxes on your own using on-line software, it is important that you know what information is required to complete a tax return and are able to read and understand your filed tax return.
There has been a significant change in the forms and schedules for the 2018 federal tax return as a result of the Tax Cut and Jobs Act. If you have children, you will want to understand how child tax credits are calculated, especially if you have to negotiate with your ex-spouse which one of you is entitled to take the credit(s).
The 1040 base form is two pages long. If you are no longer married, you need to choose a tax filing status – either “single” or “head of household.” In most cases, filing as head of household will result in you having to pay less tax. However, there are many criteria you must meet in order to qualify as head of household.
Information you need to list on this form includes:
You will also need to determine whether or not you will take the standard deduction or itemize your deductions. If you have large un-reimbursable medical or dental expenses, own a home and pay mortgage interest, or make significant charitable donations, it may be in your best interest to itemize your deductions by using Schedule A. However, because the new tax law capped how much can be deducted for state income and local property taxes, it may end up being more beneficial to use the standard deduction, which is $12,000 for singles and $18,000 for heads of household.
Schedule B is where you report interest and dividend income.
Schedule C is where you report business income and expenses if you are self-employed as a sole proprietor.
Schedule D is where you report your gains and losses from investments outside of retirement accounts.
Schedule E is where you report income and expenses associated with rental real estate.
If your divorce was finalized before December 31, 2018 and you receive alimony, it is likely that the payments you receive are taxable and must be listed on Schedule 1. Conversely, if you are paying alimony to an ex-spouse for a divorce that was finalized before December 31, 2018, it is likely that the payments you make are tax-deductible and will also be listed on Schedule 1.
If you received unemployment compensation during the year, that amount would also be listed on this schedule.
Contributions to certain types of individual retirement accounts and health savings accounts are tax-deductible and are listed on Schedule 1. You may also be able to deduct interest on certain types of student loans.
Although there are other schedules, most of these won’t pertain to most taxpayers’ financial situation. Your tax preparer or tax software should ask questions to determine whether or not you need to complete any additional schedules.
If your ex-spouse is ordered to pay child support to you (or you are ordered to pay child support to your ex-spouse), you will be glad that you have taken the time to understand how to read a tax return. Income and other circumstances change, therefore it is not uncommon for one party to request a modification of the monthly child support amount paid or received. In addition to pay stubs, income tax returns provide relevant information used to substantiate requests for modification.
©2011-2020 Worthy, Inc. All rights reserved.
Worthy, Inc. operates from 20 W 37 St., 12th Floor, New York, NY 10018