Tax Tips for Separated Couples
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.
Key Takeaways
- If you have no separate maintenance decree or decree of legal separation by the final day of the year, the IRS considers you married for the entire tax year.
- Legal fees related to divorce generally aren't tax deductible. Choosing "Married Filing Separately" can lead to higher taxes but can avoid shared liability for each other's tax obligations.
- Choosing "Married Filing Separately" can lead to higher taxes but can avoid shared liability for each other's tax obligations.
- If you're considered "unmarried" by tax law due to a decree of separation maintenance, you may file as "Single" or "Head of Household," provided you meet conditions like having a dependent and paying more than half the household expenses.
Taxes when separated
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.
Legal fees
Unfortunately, court costs and legal fees related to a divorce are not tax deductible. For tax years prior to 2018, however, you may be able to 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.
- Beginning in 2018, these types of deductions are no longer available.
Filing status
December 31 is an important day for separated couples. The IRS considers you married for the entire tax year when you have no separate maintenance decree or decree of legal separation 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."
However, if your spouse was not a member of your household during the last 6 months of the tax year and you meet additional requirements to be "considered unmarried" by the IRS, you may be able to file as Head of Household despite not being legally separated or having a divorce decree by the end of the tax year.
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.
TurboTax Tip:
Filing jointly can lower your tax bill but means you're both responsible for any taxes due, including penalties and interest.
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 separate and joint 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 often 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 both taking the Standard Deduction or itemizing—if one itemizes, you both must itemize.
- You typically 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 certain tax credits such as for higher education, 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 for yourself and the dependent.
- 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 can depend on whether your spouse has agreed to waive his ability to claim the child as a dependent—only one of you can claim the child as a dependent.
- When you can claim your child as a dependent, you typically can also claim child-related credits.
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