Benjamin Franklin said there were only two things certain in life: death and taxes.
Tax responsibilities and options on filing your taxes are very important when going through the divorce process in Texas.
The marital status on December 31st, the last day of the tax year, determines your status for the entire year.
If you are married on December 31st of any given year, then by IRS standards you can only choose married filing jointly or married filing separately. You cannot file single or head of household. Texas does not recognize “legal separation”, therefore you remain married from a tax perspective until the divorce is final.
If you were divorced by midnight on December 31 of the tax year, you are then divorced for the entire year and will file separately from your spouse.
If you were married on December 31st, then the couples can file a return as:
- Married filing jointly
- Married filing separately
If you are divorced on the last day of the year, you may not file jointly but can file a return as:
- Head of household
From the perspective of tax advantage, normally, filing jointly gives the most benefit and filing as head of household ranks second.
The advantages of a joint marital return are:
- Deductions: Dependency exemption and the deduction for a spouse’s IRA contributions.
- Credits: Child and dependent care credits and the earned income credit.
If you cannot file a joint return, filing as head of household may be your best option. Filing as head of household requires that:
- Spouses have lived separately for 6 months
- The home was the main residence for the qualifying dependents (children, elderly parents, foster children)
- The head of household paid more than half of the household costs.
- The head of household can claim exemption for the qualifying dependents.
Because each marital relationship is different, it is important to discuss the benefits and drawbacks of the various options with your tax expert or tax preparer.
Another important factor to consider if you are filing jointly is the possibility of a misrepresentation by your spouse as to their respective income or expenses. By filing a joint tax return, you are both jointly and individually liable for any tax arising from the tax return. This would extend to any tax owed with the return and any tax due as a result of examination of the return by the Internal Revenue Service.
So, if your spouse commits fraud or misrepresents their income or expenses on a joint return, you could be liable. The IRS Innocent Spouse rule says that you may not be responsible if you had no knowledge of the misrepresentation or you had no reason to know about the misrepresentation. Your spouse misrepresented the information on the joint return and you received no benefit from the misrepresented joint return.
So, carefully consider whether you believe your spouse could or would commit fraud when deciding to file a joint return with a spouse during the pendency of a divorce. If you believe this is a possibility, then strongly discuss with your tax expert or tax preparer and consider filing a separate return.
Advantages of filing separately:
- No liability for the other spouse’s misrepresentation of income and/or expenses.
- Within 3-year period, two individual separate tax returns can be amended to a joint return, but a joint return cannot be revised into two separate returns.
- One spouse can claim a child as a dependent and get the full advantage.
- One spouse may claim the other spouse as an exemption if the exempted spouse did not work.
- Alimony payments are deductible for the party paying and the party receiving alimony must report alimony as ordinary income.