Separated couples face choices that can have significant tax consequences. Some of these choices can be made independently; others require you to communicate with each other.
The article below is accurate for your 2017 taxes, the one that you file this year by the April 2018 deadline, including a few retroactive changes due to the passing of tax reform. Some tax information below will change next year for your 2018 taxes, but won’t impact you this year. Learn more about tax reform here.
Ending a marriage puts both partners on a federal tax path requiring forethought and planning to navigate. In addition to decisions about assets and child custody, separated couples have choices that affect how much they pay Uncle Sam. Some of these choices can be made independently; others require you to communicate with each other.
The Internal Revenue Service offers no deductions for court costs and legal fees for a divorce. It does, however, let you deduct any portions of those fees related to tax advice and alimony. These can include expert counsel on how your separation or pending divorce affects all types of taxes, such as income, property and estate, at all levels of taxation. To take advantage of these potential deductions, you need itemized billing statements from your attorney that clearly identify charges for each service billed.
December 31 is an important day for separated couples. The IRS considers you married for the entire tax year when you have no separation maintenance decree by the final day of the year. If you are married by IRS standards, you can only choose "married filing jointly" or "married filing separately" status. You cannot file as "single" or "head of household."
Since the IRS honors the divorce laws of the states, where you live affects your options as well. In Texas, for example, you remain married from a tax perspective until your divorce is final, even though you're legally separated.
Joint return considerations
Your filing status affects your tax rate and determines which credits you can claim. Filing jointly can result in a lower tax bill than filing separately, so the IRS recommends calculating your tax liability as single and joint filers to learn which offers the most savings (TurboTax can help with this, and recommend the best filing status for you).
Filing jointly could pose risks, however, since you share responsibility for any taxes due along with related penalties and interest. That means if your estranged spouse skips out on his or her taxes, you’re responsible for paying them. The IRS may relieve you from your partner's tax debts based on information you provide on Form 8857 Request for Innocent Spouse Relief.
Married filing separately
The IRS acknowledges that filing separately leads to paying more taxes but doing so avoids sharing liability for each other's tax obligation. As married filing separately, you have to agree on taking the standard deduction or itemizing—if one itemizes, you both must itemize. You must limit itemized deductions such as mortgage interest and property taxes to what you paid as individuals, although you can split any medical expenses paid from a joint account. By filing separately, you lose the ability to claim earned income and higher education tax credits among other breaks the IRS offers.
Legally separated filing options
If tax law considers you "unmarried" because you got a decree of separation maintenance prior to December 31, you can file with "single" or "head of household" status.
"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. Your noncustodial spouse must attach it to his 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 child care expense deduction, as long as you remain the custodial parent.
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