A common question many divorcing people have is how to handle taxes during their divorce.
Going through a divorce is a confusing time. There are many changes and decisions to make and many things to think about all at the same time. Divorce changes almost everything about a person’s finances. If you’re in the process of your divorce, you may wonder how you should file your taxes.
If you and your spouse had joint accounts, debts, and assets, you must divide them into new, independent accounts. You will also need new financial strategies and plans, including how you will file your tax returns. If you’re going through your divorce, or have already divorced, here are some things you need to know come tax season.
Married or Unmarried for Tax Purposes
If you are currently in the process of your divorce and won’t be legally separated on December 31, you need to file jointly or married filing separately. If you will be legally divorced by the last day of the year, it is as if you’ve been single for the entire year and will file separately.
To file as “head of household,” you may be considered unmarried even if you weren’t legally divorced as of December 31. Typically, you’ll pay fewer taxes by filing as head of household. To do this, however, you must meet the following criteria:
- Pay more than half the cost of keeping your house for the tax year
- File a separate tax return from your ex-spouse
- Not have lived with your ex-spouse for the last 6 months of the year
- Maintain the primary home for more than 6 months for your dependent children
The second tax-advantageous filing status you may qualify for is single.
Filing Jointly or Separately
Even if you were married on the last day of the year, you could still file a joint tax return with your ex-spouse. This option might be easier if you paid expenses jointly throughout that year. You will likely have a lower total tax bill with a joint return than if you both file separately.
In some cases, a couple in the middle of a divorce might not want to file jointly, regardless of the consequences. For instance, one spouse may wonder if their ex is honest with the IRS. So they would rather not sign a joint return to ensure they aren’t liable for any tax responsibility problems later on.
Determining the Dependents
If one parent has custody of a child, the custodial parent typically claims the dependency exemption and the Child Tax Credit for the qualifying child. However, the custodial parent can let the non-custodial parent take the tax exemption and tax credit by signing Form 8332.
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