Divorce complicates everything for a while, including your taxes. If you are in the midst of a divorce or are filing your first tax return after your divorce was finalized, you’ll have to consider a number of different factors.
Can You File a Joint Return?
You may consider yourself a separate entity, but if your divorce was not finalized by the end of the calendar year, then the IRS considers you to be married. That means you can decide whether to file a joint tax return. By contrast, even if you were legally married for the vast majority of 2021, if your divorce was finalized on or before December 31, then the IRS considers you to be single for the entire year, and a joint return is not an option.
If you are considered married by IRS standards and have the ability to file jointly, it is probably a good idea to run the numbers filing joint and separate returns to see which results in the most tax savings. Many deductions and credits are limited for couples filing separately, so that means a joint return could be best economically. In some cases, though, separate filing can prove financially beneficial, such as when one partner has deductions that are tied to a certain income percentage.
Can You File as Head of Household?
When the IRS considers you single, you may have the option to file as “head of household” which gives you better tax rates than an ordinary single filer. To qualify, you must:
- Be considered unmarried on the last day of the year
- Have paid at least half the cost of home upkeep for the year
- Have a “qualifying person” live with you for at least half the year or be supporting a dependent parent.
The rules regarding home upkeep and support of qualified individuals can be complicated, so it may be helpful to consult a tax attorney or accountant to see if you are eligible to file as head of household. Be aware that if your qualifying person is your child, you must be the custodial parent, and if you share custody, only one parent can claim the child for head of the household status.
You May Need to Negotiate Tax Issues with Your Ex
If your divorce attorney negotiated tax issues as part of your settlement or another agreement, then you will be prepared to handle many issues associated with your return. If not, you may need to head to the negotiating table, particularly if you had children together.
You will need to allocate joint tax obligations, including any capital gains tax from the sale of the home and any back taxes owed. If you have children, the IRS assumes that applicable tax deductions and credits will go to the custodial parent. However, the custodial parent can file a release form to allow the other parent to take these tax benefits. If you are planning to claim benefits for a child, it is wise to get your ex to sign the release and file your return as soon as possible to avoid a duplicate claim.
The Right Divorce Lawyer Can Help You Avoid Tax Problems
When your divorce lawyer considers tax implications during the divorce process, you can forge an agreement that prevents many potential problems and conflicts over tax issues. If you need help with a divorce or modifying terms after a divorce, schedule a consultation to learn how we could assist.