With tax filing season around the corner, here are some tips for those who either initiated or completed a divorce in 2014.
There are five filing status options on your federal tax returns: Single; Married Filing Jointly; Married Filing Separately; Head of Household; and Qualifying Widow(er) with Dependent Child.
For divorcing or recently divorced couples, selecting the proper tax filing status can have a substantial impact on your tax bill.
The first step is to determine your marital status based on the IRS standard. For further assistance, the IRS offers an interactive survey called, “What is My Filing Status?” . It is a five-minute online interview in which you answer questions about your marital status, amount paid to maintain the household and income.
“The IRS treats you as married if on the last day of the tax year you still don’t have a final divorce decree or separation agreement. This means you can only choose between the married filing jointly and married filing separately statuses,” according to the TurboTax video, “How to File Taxes for Divorcing Couples.”
The IRS article, “Eight Facts About Filing Status,” explains that, “If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.”
A Lawyers.com article, “Divorce and Taxes” explains, “If you’re still legally married, you can file a married filing jointly return (the most advantageous filing status for most people).”
Bear in mind that although this is the most financially beneficial option, filing jointly allocates the tax burden to both parties. If one party defaults on his/her share of the tax payments, the other is still liable for the tax bill.
Once the divorce is final, you will either need to file as Single or Head of Household. According to the Lawyers.com article, “You can file as head of household if:
– You and your ex-spouse haven’t lived together during the past six months
– You paid more than half the cost of keeping up your home for at least half the year
– You can claim the exemptions for your qualifying dependents.”
If children are involved, the tax exemptions are presumed to belong to the custodial parent but can be transferred using IRS Form 8332. Be aware that Child Support payments are neither tax deductible for the paying parent or taxable income for the recipient. Alimony payments, on the other hand, are tax-deductible for the paying spouse and taxable income for the recipient.
Be prepared to declare capital gains or losses if you or your ex-spouse received property or proceeds from the divorce settlement.
On the plus side, although you cannot deduct your divorce attorney’s fees from you taxes, Lawyers.com advises, “You may also be able to deduct fees and expenses for appraisers, actuaries and accountants who performed work connected to the divorce.”
Intuit Turbo Tax, “Video: How to File Taxes for Divorcing Couples,” Updated for Tax Year 2014. https://turbotax.intuit.com/tax-tools/tax-tips/Family/Video–How-to-File-Taxes-for-Divorcing-Couples/INF20517.html
Lawyers.com, “Divorce and Taxes.” http://taxation.lawyers.com/divorce-and-taxes.html
IRS, “Eight Facts About Filing Status,” IRS Tax Tip 2011-09, Updated 15 May 2013. http://www.irs.gov/uac/Eight-Facts-About-Filing-Status