Filling out income tax forms isn't high on many people's lists of favorite things to do. It's often complicated, and you're almost always wondering if you're doing it right. It can be even worse for divorced or separated taxpayers.
A divorce is stressful enough. Knowing how to handle your taxes can make tax time less stressful, and maybe even more profitable. It all starts with knowing the correct filing status to use.
Head of Household Filing Status
Divorced or separated taxpayers who qualify should file as a head of household because this status has several advantages:
- There's a lower effective tax rate than the one used for those who file as single
- For separated but still married taxpayers, head of household protects you from joint tax liability resulting from the other spouse's errors
- The standard deduction is higher than for single individuals
- A taxpayer who is still married and filing as a head of household may claim the standard deduction even if the other spouse itemizes deductions
Qualifying as a "Head of Household"
To qualify as head of household, you must be unmarried and not a surviving spouse. Also, you must pay more than half the cost of maintaining your home, and it must be the primary home of at least one of the following persons for more than half the year:
You may also claim head of household status, if certain requirements are met, if you claim a dependency exemption based on a parent who doesn't live with you. For example, your parent who lives in a retirement home, and you pay the bills.
Tip: It may not be clear who had custody for more than half the year and is able to file as a head of household when parents have joint physical custody of their child. The parents should agree between themselves how to handle this issue. A daily log of exactly where the child lives during the year should be kept, as well as a record of household expenses and who paid them.
Special Rules for Marital Status
Marital status is linked directly to the head of household filing status:
- You're not married if you're legally separated under a decree of divorce or separate maintenance
- You're not married if at any time during the year your spouse is a nonresident immigrant
- You are married if your spouse died during the tax year
Special Rule for "Abandoned Spouses"
You may be able to file as a head of household under the abandoned spouse rule if you're separated but still married. You're considered unmarried if:
- You have at least one child
- You run a household and your child lives with you for at least half the year
- You file a separate return
- You can claim your child as a dependent for the year (or you could claim your child as a dependent but signed a release of the dependency exemption)
- You pay the at least half the cost of maintaining the household for the year, and
- During the last six months of the year, your spouse wasn't a member of the household
Only married taxpayers may file a joint return. There are some special rules for figuring out your marital status, including the abandoned spouse rules and whether you're legally separated.
Keep in mind:
- For federal tax purposes, a marriage means a legal union between a man and a woman and, as of tax-year 2013, also includes legally married same-sex couples, regardless of the state the couple resides in
- State law controls whether you're married or legally separated under a divorce or separate maintenance decree
If you're separated but still married, a joint return may be filed, or you both may file separate returns.
Some Advantages and Disadvantages of Filing a Joint Return
The main advantages to filing a joint return are:
- The lowest effective tax rate
- The largest standard deduction available
- Availability of personal exemptions
The main disadvantages to filing a joint return are:
- You can't claim a deduction for alimony or separate maintenance (spousal support)
- Joint and several liability for taxes owed, so each spouse can be liable for the other spouse's errors and omissions in filing tax returns
Taxpayers who are married may choose to file separate returns. The disadvantage is that the highest tax rate usually applies.
Also, if separate returns are filed, both spouses must itemize deductions, or each spouse must claim the standard deduction. It's not permitted for one spouse to itemize and for the other to claim the standard deduction.
Tip: Often, parties can't agree on whether to file a joint return. Each spouse should file a timely separate return if this happens. You may later elect to file a joint return after separate returns have been filed, generally within three years of the due date of the return. In contrast, you can't amend a joint return by filing separate returns later on.
The filing status you use can save you money, or cost you money in the form of lost deductions and exemptions. It's worth taking some time to think about which status is best for you. The IRS has materials that can help, and if you're still unsure, it's a good idea to talk to a tax attorney or another tax professional to make sure you choose the correct filing status.
Questions for Your Attorney
- Given my situation, should I claim head of household?
- Do I expose myself to a potential audit if I change my filing status to take advantage of lower taxes?
- What are the long-term effects of using the innocent spouse rules?