Divorce comes with huge adjustments. Taxes are anxiety-producing for most people, but those who are going through or who have already divorced have additional concerns. A tax attorney is going to be best at helping you navigate the filing status of your taxes. Still, here are some basics to keep in mind.
Your filing status will be determined by the status of your marriage on December 31 of the tax year. You will need to consider whether you are legally separated or are divorced. If you are divorced at the end of the tax year, you have the option of filing as “single”. You also may file as “head of household” if you are the custodial parent of your children or other qualifying dependent. You may also choose these filing statuses if you have a legally binding separation agreement and have been living away from your spouse for more than half of the tax year.
If you have a qualifying child or someone who you can claim as a dependent, a “head of household” filing might be best. This filing status has several benefits including having a lower effective tax rate than someone filing as single. It allows you to claim the standard deduction and if you are married but separated, the head of household status serves as a protection against joint tax liability.
If you are still legally married and living together on December 31, you can choose to file as “married filing jointly”. This is favorable if you believe your spouse will play fair. In order to qualify for filing as “married filing jointly”, you must still be legally married. From a federal standpoint, married means a legal union regardless of the state where you and your spouse reside. However, the state determines the status of your marriage.
Filing jointly has the benefit of the lowest effective tax rate, while filing separately limits potential tax benefits. If you qualify, it may be advisable to file jointly to take advantage of available tax benefits while you still have the opportunity. If you file jointly, both you and your spouse are responsible for what goes on the forms and both are responsible in the case of an audit.
The downfall of filing jointly is that you will not be able to deduct any legal fees for alimony that are incurred during divorce proceedings. Additionally, unlike the head of household status, you no longer have protection against joint tax liability, which is problematic if your spouse makes errors or emissions on their return.
If filing separately, each spouse must itemize deductions—one can’t file deductions while the other hasn’t. Since some aren’t able to agree on whether to file a joint return, you may choose to file separately earlier in the year then elect to file jointly at a later time.
With changing tax code and the complications of how divorce affects taxes, be careful in how you file. Do your research and work with a tax attorney and other tax professional to make sure you avoid mistakes. If you need support with understanding the tax implications of divorce, call our office at (209) 492-9335.