As we approach the 2014 filing deadline for taxes, the question arises, how do those going through a divorce handle their tax filings? Separated couples face choices that may have significant tax consequences. Some choices, while made independently, must be made by communication with the other spouse despite their legal separation. In addition to decisions about the division of assets and child custody issues, separated couples’ decision to end a marriage has federal tax implications that require planning. The choices separated couples make affect how much they will end up owing in taxes.
How to File
One of the major questions an individual has when going through a divorce is how they should file their taxes. The IRS considers couples married for the entire tax year they are married and there exists no maintenance decree by the final day of the year. If married by the IRS standards, you are limited to two choices: married filing jointly or married filing separately. Unfortunately, even if legally separated you cannot file as single or head of household. The IRS does honor divorce decrees of states, but in Texas you remain married from a tax perspective until your divorce decree is finalized, despite legal separation status.
IRS Fees
Unfortunately, the Internal Revenue Service does not offer deductions for court costs and legal fees of a divorce. However, it does allow deductions for any portions of those fees related to tax advice and alimony. To take advantage of the tax deductions, request itemization of billing statements from your attorney, which clearly identify the charges of each bill.
Tax Implication of How Taxes are Filed
How you file, whether joint filing or married filing separately, can affect your tax rate and the credits that can be claimed. A joint tax filing can result in a lower tax bill than filing separately. Filing jointly can expose you to risk since you share responsibility for the payment of taxes due along with any penalties and interest. An estranged marriage may mean your spouse will not pay taxes and you may remain on the hook for paying. Despite this risk, the IRS may relieve you of your spouse’s tax debts based on information provided on the Form 8857 Request for Innocent Spouse Relief.
If tax law considers you “unmarried” because a court declared separate maintenance decree prior to December 31, you can file your taxes as single or head of household. “Head of household” requires you to have a dependent and pay at least half of the expenses needed to maintain a home. If your dependent is a child who lives with you more than with your spouse, the IRS considers you to be the custodial parent. Your deductions and credits as custodial parent depend on whether your spouse has agreed to waive his ability to claim the child as an exemption under Box 6a on the 1040 form — only one of you can claim the child as an exemption. When you can claim the dependency exemption, you can claim child-related credits.
If you, as custodial parent, agree to let your spouse claim your child as a dependent exemption, you must sign form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. The noncustodial spouse must attach it to his/her tax return. Relinquishing this exemption does not affect your ability to file as head of household or take advantage of tax breaks such as the work-related childcare expense deduction, as long as you remain the custodial parent.
Consult an Experienced Divorce Attorney
If you are going through a divorce and debating how to file your taxes you should contact an experienced attorney who can help you navigate the possibilities for your tax filing. Attorney Christopher L. Arrington is an experienced divorce attorney who can assist you during your divorce. Contact our office today to discuss the tax implications of your divorce.