As a (sort of) recent divorcee, I have been navigating my finances and getting a sense of how to responsibly handle my money in this new phase of my life.
Once upon a time, I worked for IRS as an international tax auditor. I reviewed the tax returns of people living abroad as well as foreign-born individuals that lived and worked in the US. So, suffice it to say, I’m pretty comfortable with tax law.
That being said, I still wasn’t quite prepared for what life would look like as a person preparing her taxes for the first time post-divorce. It’s been about 6 years since I left IRS, so I wanted to make sure that I had the most current knowledge of the tax code, and I wanted to ensure that I was making good decisions now and in the future as I go forward.
So here’s my little guide for getting a good handle on your tax situation as a separated or divorced person. Some of the tips are also good for anyone (I’ll put my “applies to anyone” advise in parentheses after each applicable tip). Keep this guide of 5 tips (I even threw in a bonus for everyone, so it’s technically 6 tips!) to help you approach your taxes in a clear, orderly, empowered fashion.
- Relax about the process. Seriously, nothing good comes from worrying. So take a deep breath and know that YOU CAN DO THIS! Pace yourself and give yourself time to really absorb what you’re learning. Don’t worry about committing it all to memory: no one does that! Just get familiar enough with how to search the IRS.gov website and you will be fine – really, you will! (This applies to everyone. Taxes have a “logic” that begins to make sense to you when you take your time. Don’t worry about learning it all).
- Order return, account, and wage/income transcripts for the entire period of the marriage. These documents are free and can arrive to you within two weeks, or you may also request to view the transcripts online. The main transcripts you’ll need are 1) return transcripts, showing what was reported on the tax return for a given year; 2) account transcripts, showing the summary of account activity during a given year (especially helpful if you paid tax as opposed to getting a refund, or if the refund was “offset” [reduced to pay for a federal or state obligation, like delinquent child support, student loans, unpaid income taxes, etc.,); and 3) wage/income transcripts, that show all of the income received during a tax year, as well as mortgage interest paid, student loan interest paid, debt cancellations, etc.,. You want to review these documents to make sure that all of the information is correct before you file your taxes. These are good documents to include in your financial binder, too (This is a good practice for everyone. Order the documents, review them, and make sure that everything is accurate).
- Get Publication 504 and READ it! This publication is voluminous but it covers everything that divorced and separated people need to know when preparing their taxes. This is especially helpful for parents, as custody agreements and divorce decrees may have special rules for handling how the parents will file and claim credits and deductions related to children.
- Take advantage of free tax preparation software that is available through Credit Karma. I’ve used it for the past two years and I’m very pleased with how well it works. If you’re nervous about preparing and submitting your taxes, then play around with the Credit Karma software (but don’t submit the document: just print it out) then get a trusted tax professional to review it. Have that professional tell you if you missed anything, or have them explain how certain rules, credits and deductions work. (Credit Karma is free to everyone, so check out the software and see if it’s something that will work for you).
- Know that you can always amend a return. If you mess up, you can always correct it! The form for amending taxes is Form 1040X. Correcting the taxes can be time consuming, but if the change is significant enough, it’s worth it to initiate the correction on your end as opposed to having IRS open an audit. Audits, by the way, aren’t the super-scary event that most people paint it to be. However, it can take a long time to resolve (depending on the auditor) so it’s always best if you are proactive and amend an incorrect return. (Again, this applies to everyone).
- Bonus tip: make sure your address is current! Sometimes IRS will send you correspondence to the last address of record, which may have changed since your last filing. Depending on how much your ex controlled the flow of information, you’d do well to update your address with IRS by filing Form 8822.
I’ve hyperlinked all of the referenced forms, websites and publications for your convenience.