During the time that a couple is separated, and prior to the divorce decree, it can be quite confusing to determine how to file the income tax returns. There are many filing statuses that seem to be available, but how do you know which one is right for you? Married Filing Joint? Married Filing Separate? Single? Head of Household? The filing status that you use for a tax year is determined based on your marital status on December 31. Let’s look briefly at each filing status.
Single
This filing status is only applicable after the divorce has been finalized. Once the divorce is final, this filing status is used for any taxpayer who does not provide the main home for more than half the year for a dependent.
Head of Household
Typically, this filing status is only available after the divorce and is available to the parent whose home is the principal residence for more than half the year for one or more of the children. In limited circumstances, a taxpayer may be eligible to file a tax return using the Head of Household filing status prior to divorce. In order to qualify, all of the following tests must be met:
- Taxpayer files a separate tax return
- Taxpayer paid more than half the cost of keeping his or her home for the year.
- Taxpayer’s spouse did not live in the home for the last 6 months of the tax year.
- Taxpayer’s home was the main home for more than half the year for a dependent child.
Tax rates for the Head of Household filing status are much closer to the tax rates for Married Filing Joint and, therefore, this can be an advantageous filing status for some taxpayers who are separated from their spouse but not yet divorced and for whom the Married Filing Joint filing status is not an option.
Married Filing Separate
While it may seem like the logical choice after you have separated, the general rule of thumb is that the worst tax rates are applied to those who choose Married Filing Separate. More income is taxed at higher tax rates, and several credits and deductions may be lost. There are limited occasions where the Married Filing Separate may be a more advantageous filing status from a tax perspective, but they are rare. And there may be some circumstances where, although the tax incurred will be higher, this filing status is a more prudent choice for a taxpayer.
Married Filing Joint
In general, this filing status offers the best tax rates for more of a family’s income and allows several more credits and deductions to be used. If at all possible and prudent, I recommend that clients work toward filing jointly until the divorce is finalized.
Cathlean Utzig is a CPA and Certified Divorce Financial Analyst with her own private tax practice focusing on individuals, small businesses and families in transition.