Two things that make most people unhappy are facing divorce and the prospect of filing taxes. These experiences, unpleasant on their own, can be even more difficult when combined. When you are in the midst of the divorce process, and confronted with the need to file your income taxes, what do you do? Do you have to file taxes with your spouse if you are separated?
Many people default to what they've done throughout their whole marriage, namely, filing a joint tax return. This is still a reasonable option for some couples, who may be able to communicate well enough to complete this task together. For those who are daunted by the prospect of filing taxes with an estranged spouse, other options exist.
What tax filing status you can choose depends in part on your legal status as of December 31 of the tax year. For IRS purposes, you are married for the entire tax year if, by December 31, you have no separation maintenance agreement. If the IRS considers you married, your filing options are limited. You may choose to file a joint return, or you may choose to file your taxes as "married filing separately." Even if you have lived apart the whole year but do not have an agreement that meets IRS requirements, you may not file as "single" or as "head of household." If you choose to file as married filing separately, you may also choose this option on your Maryland state income tax return
Even if you can choose to file separately from your spouse, should you? Your income tax filing status affects the rate at which you are taxed and determines which tax credits you are eligible for. Often, filing a joint tax return results in lower tax liability than filing separately—so consider how much the ability to file separately is worth to you, in dollars and cents. The IRS advises taxpayers to calculate their tax liability under both scenarios to see which one benefits them the most. If you have tax software or an accountant, it can make this determination a lot easier.
For tax year 2018, married taxpayers filing separately receive a standard deduction of $12,000. By contrast, joint filers can take a $24,000 standard deduction. In addition, joint filers may be able to qualify for several tax credits, including the Earned Income Tax Credit (EITC) and the Child and Dependent Care Tax Credit.
Having a lower tax bill is, of course, desirable, but it is not the only consideration in whether to file jointly or separately. Much depends on your relationship with your soon-to-be ex and your respective financial situations. When you file a joint tax return, you are jointly responsible for any taxes due, as well as any penalties that have been incurred or any interest that has accrued.
If your spouse dodges the tax bill, you could be stuck with the whole thing. If you see that as a possibility, it's likely worth it to file separately. Also, if your spouse has taken certain actions over the tax year, for example: taking untaxed distributions from a retirement account or under withholding from his or her income, then there may be additional taxes owed. Your tax bill may be higher, but probably not as high as the tax bill for both of you. If your spouse were to skip out on paying their share of the taxes, you might be eligible from relief for their debt if you file a Form 8857 (Request for Innocent Spouse Relief).
Other things that might make you think twice about filing separately: if you do so, you may not be able to take a deduction for student loan interest. You may also be limited to a smaller deduction for contributions to Individual Retirement Accounts (IRAs). If being able to deduct capital losses matters to you, know that on a separate return, you may only be able to deduct $1,500, instead of the $3,000 allowed on a joint return.
All of that said, there are scenarios in which filing separately may provide a financial benefit. If one spouse, particularly the lower-earning spouse, had a lot of out-of-pocket medical expenses during the tax year, he or she may be able to deduct more of those by filing separately. Your ability to deduct medical expenses is a function of your adjusted gross income (AGI). You may only be able to deduct those expenses that exceed 7.5% of your AGI. With a lower AGI, the threshold at which you can begin deducting medical expenses would also lower.
In general, in any financial situation in which your spouse creates a financial liability to you, such as because of his or her own unsound financial practices, you may be better off filing taxes separately. You may want to consider consulting with your attorney or tax preparer to get a complete analysis of what tax filing status will be most beneficial for you.
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The Law Office of Shelly M. Ingram hopes you find this article to be a helpful starting point for questions that you may have about your tax filing options. The Law Office of Shelly M. Ingram, LLC is not an accounting firm and cannot offer any tax advice or legal advice on matters related to tax law. The law and the IRS regulations change regularly and the outcome of any legal matter depends on its unique circumstances. If you need specific advice regarding tax law, please consult a tax attorney or an accountant.