Couples filing taxes in the midst of a divorce have a lot to consider, starting with establishing the correct filing status for both spouses. Choosing the right status can have a significant impact on how much you owe the IRS at the end of the year, how much the IRS may owe you, standard deductions, eligible credits, and your correct tax. The IRS identifies five statuses:
When determining your filing status, the key date to keep in mind is December 31st. All statuses depend on whether you’re considered married or single on that day.
Filing as Single
The single filing status is the default if you’re considered unmarried, or you don’t qualify for any other filing status. If you’re married but want to apply as single status you technically can do so if you are separated by court order, or don’t have dependents that can qualify you as the head of the household. The standard deduction for those filing as a single status for 2020 is $12,400, and $12,550 for the 2021 tax year.
Head of the Household
Compared to filing as a single, you can apply as the Head of the Household and benefit from potential tax advantages such as lower taxable income and larger refunds, but there are criteria that must be met first.
Head of household criteria:
When it comes to household expenses, filing as the head of household has several advantages, such as:
The 2020 standard deduction for head of household is $18,650.
Married filing jointly
There are many advantages to filing jointly with your spouse during a divorce. To start, the IRS provides joint filers the largest standard deductions, as well as multiple tax credits such as the Earned Income Tax Credit, Education Tax Credits, Child Care Tax Credits, among other deductions. Overall, as a joint filer you are more likely to incur a lower tax bill or receive a larger return.
There are some disadvantages to filing together. One example is legal responsibility for back taxes owed by your spouse. When you file together both you and your spouse are liable for paying any taxes due, plus the related penalties and interest, even if the all the income was earned by your spouse. The IRS does provide three options to relieve you from your spouse’s tax debts:
The 2020 standard deduction for married filed jointly is $24,800.
Married Filing Separately
Some couples do choose to file separately during a divorce. If you are married but filing separately you are responsible for only the tax due on your own return. If you are filing separately both spouses need to itemize all deductions, and often times can lead you to paying more for taxes but can prevent you from having to pay your spouse’s tax obligations.
In instances where you want to claim more of a medical deduction or say you and your spouse have the same yearly income, it can be helpful to file separately. Joint income can place you and your spouse in a higher tax bracket, so filing separately can reduce both of your individual tax rates and help save you from having to pay more in taxes.
The 2020 standard deduction for married filing separately is $12,400
The Bottom Line
If you’re unsure about which status you should use when filing your taxes, there are many resources available to help you determine the correct filing status. The IRS provides an interactive ‘What is my Filing Status’ tool on their website that helps users select the status that applies best for all individuals and at the lowest taxable amount.
Filing for divorce can be an emotional and intimidating process. Feel free to contact Kiswani Law today for a confidential consultation. 708.210.9247
‘What is My Filing Status’ IRS Tool: https://www.irs.gov/help/ita/what-is-my-filing-status