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When you are in the middle of a divorce, the last thing you are thinking about is filing your tax returns.  Some things to consider are filing status, dependent children, transfer of the house, nd estimated taxes.

Filing status:    When you file a US tax return, your filing status is either married filing jointly, married filing separately, single or head of household.  If you are considered married on the last day of the year and you file a joint tax return, both you and your spouse are liable for any tax due on the tax return, as well as any additional tax if the tax return is examined by the IRS and it is determined that there were errors or omissions.  To avoid being responsible for your soon to be ex-spouse's tax liability, you can file a separate tax return.

While protecting you from your soon to be ex-spouse's tax liability, using married filing separately status may limit your ability to itemize your deductions and may reduce various tax credits, possibly resulting in additional tax for both spouses.  If you use married filing separately status and your divorce is not as bitter as you thought it would be, you can amend your tax returns and file a joint return within three years from the original filing date to receive tax benefits you may have not been entitled to when filing separately.  Generally, you are considered single if on the last day of the year you are unmarried, legally separated or divorced under a divorce or separate maintenance decree or if you lived apart from your spouse for the last six months of the year.  Head of household is a special status for someone who is considered unmarried on the last day of the year, paid more than half the cost of keeping up a home for the year and a "qualifying person," such as a dependent child or other dependent relative, lived in the home for more than half the year.  If you have a dependent parent, the parent does not have to live in the home.

Now that you have determined your filing status, who claims the children?  Usually, the custodial parent claims the dependency exemption for the children.  If there is joint custody, the parent in whose home the child spent more nights can claim the dependency exemption.  However, parents can agree that the non-custodial parent can claim the children.  The IRS has a form (8332) that is signed by the custodial parent and attached to the non-custodial parent's tax return.

What about the house?  There is no recognized gain or loss when property is transferred between spouses as the result of a divorce.

If both spouses made joint estimated tax payments but are not filing jointly, they can agree on who gets credit for the taxes paid.  If they cnnot agree, there is an IRS regulation that allocates the tax payments based on each spouse's proportion of the combined tax liability.

These are just some of the tax considerations during a divorce.  Your attorney should work closely with your accountant to determine the best tax strategy for you.

Gary Topple, CPA has more than 33 years of tax, accounting and auditing experience. 
He is a partner in the CPA firm G. R. Reid Associates, LLP. 

gtopple@grrcpas.com
181 Main Street Huntington, NY  11743
631-425-1800 extension 306 Fax 631-425-4656
 

The information contained herein is intended to afford general guidelines on matters of taxation.  Accordingly, the information in this article is not intended to serve as legal, accounting or tax advice. Unless specifically stated otherwise, the written advice in this article or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Readers are encouraged to consult directly with their professional advisors or a professional advisor at G.R. Reid Associates, LLP for advice concerning specific matters.