By Jonathan Fields, Esq.
Couples in the midst of divorce often face difficult decisions regarding taxes. One of them is whether to file a tax return as “married filing jointly” or “married filing separately.” This article briefly examines the factors to consider in making what could prove a critical choice during a divorce.
I. Eligibility to File a Joint Return
First, the basics – a taxpayer’s marital status for the entire year is determined as of December 31. A taxpayer who is married (or divorced) on that date is treated as if he or she were married (or single) all year long. The IRS looks to state law to determine marital status. So, in Massachusetts, after the court approves your agreement, there is a 90-day or 120-day waiting period until the divorce is final – for the IRS, that’s the date that counts.
II. Considerations in Filing a Joint Return
Assuming a divorcing taxpayer has the option to file jointly – there are several considerations.
a. Does it Lower your Tax Burden?
In most cases, the couple will have a lower overall tax burden if they file jointly rather than separately but this, of course, will vary case to case. Filing separately generally becomes costlier overall as the disparity in incomes increase. In any event, this decision should be made with input from a qualified accountant.
A critical economic consideration concerns the deductibility of any alimony payments made during the tax year. If a couple files a joint return, the IRS does not permit alimony paid to be deducted from a payor’s gross income.
c. Joint and Several Liability
The filing of a joint return subjects both filers to joint and several liability for all taxes, interest, and penalties due in connection with the return — regardless of each spouse’s share of the taxable income. The IRS may attempt to collect all or any of the balance due from either spouse, even if your divorce agreement says otherwise. A spouse who believes the other spouse has understated income may wish to file a separate return, even if it results in a higher tax liability – because a spouse filing a separate return is not responsible for the tax liabilities of the other spouse.
d. Amending Returns
Another consideration is the limited ability to amend a jointly filed return. Once filed, a taxpayer cannot amend his/her filing status after the April 15th deadline. Conversely, a separate return can be amended to a joint return at any time up to three years from the original April 15th deadline.
Individuals going through a divorce must carefully consider the ramifications of their tax filing status. The consequence of the wrong choice might be serious – making it critical to get input from an accountant and divorce attorney prior to filing.