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Filing the first tax return following one's Colorado divorce

Divorce brings on a lot of changes to Colorado residents. Adjusting to the differences between living as a married couple and life as a single person can take time, and in many cases is a joyful process. Tax time presents a challenge, however, and filing for the first time after divorce can be more of a challenge than in years past.

The first consideration is one's filing status. In past years, filers likely chose between 'married, filing jointly' or 'married, filing single' as their options. However, once the divorce is final, one's tax status changes to either 'single' or 'head of household.' As far as the IRS is concerned, an individual's tax status depends on their marital status as of Dec. 31.

Another stumbling block for divorced parents concerns which party has the ability to claim the child or children as dependents. Tax law is clear that the parent who spends 50 percent or more of the year with the child or children has the right to claim them as dependents. However, in many divorce agreements the ability to claim dependents is worked into the negotiation process, and can result in the non-custodial parent being granted the tax advantage of claiming dependents.

Yet another issue involves the transfer of property between spouses during the divorce. Property division transfers are not subject to taxation. However, any sale or liquidation of those assets once the divorce is final will be subject to the appropriate taxes. When making the decision to sell assets, it is imperative to fully understand the tax ramifications before moving forward. There are certain times and ways to sell property that are better than others, and a great deal of savings can be achieved by proper timing in these matters.

Filing for taxes in the year immediately following divorce can be a challenge. However, once the return for the first year is complete, tax issues should be simplified for future years. For Colorado filers who have a complicated mix of assets, or unusual stipulations within their divorce agreements, it may be worth the time and investment to have an accountant or tax professional prepare the return.

Source: Huffington Post, "Preparing Your Taxes In The Year Of Divorce," Kathleen B. Connell, March 21, 2013

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