Married couples have two options when filing their tax returns. These are married filing jointly and married filing separately. During the divorce process, either of these options is acceptable because the marriage is still in effect. Which one is better depends on your circumstances.
Should You File as Married Filing Jointly or Separately?
Under the tax code, there are advantages to being married. Often, there are more favorable tax deductions, tax credits and tax brackets for married couples compared to single people. However, some of these benefits may be lost if you file as married filing separately as opposed to jointly.
Generally, it is recommended that spouses file jointly to get the most tax advantages. However, there are exceptions. If you suspect your spouse has committed tax fraud, you will want to file separately as you will be held jointly and severally liable for the unpaid tax in addition to any interest and penalties assessed thereto. When filing jointly, you should make sure to check the tax return carefully and verify the numbers particularly if your spouse prepared the return.
There are also some instances where it may make sense to file separately such as if you have significant individual expenses or deductions.
An experienced tax professional can evaluate which option will result in the lowest tax bill.
When Do You Stop Filing Returns as a Married Person?
The IRS looks at your marital status as of December 31st of the relevant tax year. Therefore, if your divorce is finalized on December 30, 2024, when you file your tax return in April 2025, you must file as a single person, even though you spent almost the entire year as a married person.
In some cases, it may be beneficial to push the divorce to the new year if you are very close to the end of the year. This way you can file as a married couple and get the tax benefits. However, you should consult an accountant to analyze your particular situation.
What Are the Tax Consequences of a Divorce Settlement?
The tax implications of support payments and property division should be analyzed before agreeing to any settlement. There are different tax rules that apply to marital and separate property, stock grants, spousal support, the federal Child Tax Credit, the capital gains exemption for the sale of a home and other assets and income. Additionally, interspousal transfers are tax-free during a marriage. Consequently, your settlement agreement should consider who pays the tax and how much in order to achieve a fair allocation.
If you are considering a divorce, it is essential to use an experienced attorney and tax experts who understands the tax consequences of your divorce. Contact us to discuss how we can help you achieve a positive outcome in your divorce.
