Filing taxes can be complicated, no matter whom you are. However, sorting through the tax code when you are going through a divorce can be much, much harder. This guide can assist you with how to proceed.
Were you married at the end of the tax year but divorced prior to filing your taxes? In that case, you and your ex-spouse may agree to file a joint tax return for the year prior. In many cases, your tax liability can be lowered by filing in this way. Your accountant can go over your income information and deductions before letting you know if this is the best course of action for you.
On the other hand, if your divorce was finalized at some point during the tax year, you must then file as single or head of household and cannot file a joint return.
Your divorce decree must be clear in what will happen to any tax liability that the two of you share and any refunds you will receive. This applies to all taxes that are supposed to be filed jointly. Once your divorce is final, any future year’s tax filings will not be regulated by your divorce decree or prior marital agreements.
For example, if you will owe taxes but one spouse made more money than the other, a judge could order that each party be responsible for a set percentage of the tax liability. This can keep things fair since the more income you earn, the more you have to pay.
The same is true, however, for a tax refund. If one spouse paid more in taxes during the year, he or she may request to receive a greater percentage of the refund, and a judge will decide if the request should be granted. Even if you settle your divorce without a trial, an agreement like this should be in writing.
The biggest risk of filing a joint return—when it’s not required—is that you will then be jointly liable for any tax debt, interest, and penalties. If one of you makes significantly more money than the other, this could be a huge disadvantage for the lower-earning spouse. There are some ways to avoid this type of liability, but all require filing additional forms with the IRS that must be approved.
If you decide to file without your spouse, you will need to file as head of household or married filing separately. Head of household generally provides more opportunities for deductions, such as dependent care credits, so this could put you into a lower tax bracket.
However, the only way you can file as head of household is if you paid for at least half of the expenses associated with the household and your children lived with you for more than six months out of the year. Additionally, you and your ex-spouse will need to have divorced within the first half of the year. Otherwise, you need to file as married filing separately.
Keep in mind that all agreements—including your divorce decree—must be clear and unambiguous so that you can file your taxes free from worry or conflict. Having a knowledgeable family law attorney assist you is the best way to accomplish this. For assistance with your divorce case, call 909-466-7661 to speak with the Law Office of Laurence J. Brock or contact us online through our website.