Is It Better to File Taxes Before or After a Divorce?
Tax season is approaching, and you and your spouse are in the middle of a divorce, but Uncle Sam will not care about your personal problems. It is advisable to consult with a tax professional to determine if it is better to file taxes before or after your divorce for your particular circumstances. Generally speaking, it will benefit both you and your spouse to file your taxes jointly, before the divorce.
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Filing Status
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If you and your spouse are still legally married on December 31, then the IRS considers you married for the entire tax year. Conversely, if your divorce becomes final on or before December 31, the IRS considers you to be unmarried for that entire year. Even if you and your spouse spent most of the year living in separate households (but not legally separated), you are considered to have been married the whole year. Your filing status would remain "married," but you could still opt for "married filing separately."
Filing Jointly
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In most situations, it is probably better to file taxes jointly before your divorce is finalized. It would be absurd to let the government benefit by filing separate tax returns out of pride and stubbornness, if filing jointly is more advantageous. According to the IRS, filing jointly will allow a higher standard deduction and additional tax benefits and credits that are not available with other filing statuses. You may end up with less tax by filing jointly, than your combined tax filing separately. (See References 3)
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Filing Separately
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Special rules imposed by the IRS for filing separately, typically result in more combined tax than a joint return. A few of the rules include: generally, a higher tax rate when filing separately, no earned income or child care credits and the child tax credit gets cut in half, as well as the retirement savings contributions credit. The IRS suggests calculating your tax both ways (jointly and separately) to determine which filing status gives you and your spouse the lowest combined tax.
Other Considerations
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If you and your spouse have decided to sell the marital home as part of the divorce settlement, capital gains could be an issue. A new tax bill that took effect in August of 1997 did away with capital gains tax for most homeowners, but the property must have been your primary residence for at least two of the previous five years. So, if you have both moved out of the home, it must be sold within the following three years after moving. If you move out but your spouse remains, once three years have passed, the home will no longer be considered your primary residence, and you will owe capital gains tax if the house is sold for a profit.
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References
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- Photo Credit tax forms image by Chad McDermott from Fotolia.com
