EP 97: Why the wrong tax filing status during divorce will cost you thousands

Link: https://www.divorceandyourmoney.com/shows/the-wrong-tax-filing-status-will-cost-you
Content: Episode 97 of the Divorce and Your Money podcast is about your tax-filing status. It is a small checkbox that has a big impact on how you pay taxes.

Taxes can be complicated and confusing, and they might be the last thing on your mind when you are going through a divorce. However, knowing what to look for can make a big difference in how much you pay. It could even be the difference between paying hundreds or thousands of dollars. In some cases, negotiations that you make during your divorce can save you money in taxes for years to come.

This episode will focus on one tax issue: the tax-filing status. For the 2016 tax year, it is your marital status as of December 31, 2016. It impacts your exemptions, deductions, credits, and even your tax bracket.

There are four basic options for tax-filing status:

• Married filing jointly
• Married filing separately
• Head of household
• Single

If you are living apart (but are not legally separated) in your state as of December 31, 2016, you are married.

Here is an explanation of the options for filing status:

Married Filing Jointly You and your spouse file a joint return, and you both sign the same return. This option gives you the most tax benefits, so most people who are going through a divorce go this route.

The downside to this option is that you are legally responsible for that return. If there is a possibility that your spouse might be doing something suspicious (such as gambling or hiding money), then you could be held liable.

Married Filing Separately If you don’t have any income (or you are concerned your spouse is doing something suspicious), you should probably use this option. You and your spouse will each file an individual return, so you will only report your own income and deductions. Unfortunately, you will pay a lot more in taxes if you go this route.

Head of Household You can use this status if you have the majority of responsibility for your children and your home. Check the IRS website for the full requirements for being a head of household. This status will likely give you the most benefits (aside from being married filing jointly). You can choose this status whether you are married or divorced.

Single If you are divorced or legally separated (and you do n0t qualify as a head of household), then you must file as single. This status has the highest tax rates, so only choose this option if you cannot use another one.

Even though the tax-filing status is just one small checkbox on your tax form, it could save you thousands of dollars. To choose the right filing status for you, ask your accountant, or do your own research.

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