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Tax Tips Tuesday: Address Your Tax Situation After Divorce

By Lynn Ebel
The Tax Institute At H&R Block


Sometimes the biggest changes to your tax return from one year to the next isn’t a result of an act of Congress changing the tax laws but is a change in your life, such as a marital status change.

Filing Status

If the divorce is final
Your federal filing status depends on your marital status at midnight on the very last day of the year. Therefore you could be married virtually the entire year, but obtain a final decree of divorce on December 30 and you would not file as married at all for the entire year.

Your tax rates applied to your taxable income for the entire year are based on your filing status. So if you were withholding based on a married filing jointly filing (MFJ) status all year, but file with a single filing status, you may be shocked at your tax appointment. The taxes owed compared to your withholdings could result in a sizeable tax bill. The second you know that you could be divorced by the end of the tax year, you will want to do a W-4 checkup to avoid an unhappy surprise at tax time. You may need to start over-withholding later in the year to make up for under-withholding earlier in the year due to your life event change.

If the divorce is in progress
On the other hand, you are still considered married for the entire year if you and your spouse have filed for divorce or separation but have not obtained a final decree of divorce or separate maintenance decree by the last day of the tax year. An interlocutory decree is not a final decree.

If you are considered married for tax purposes, then your filing status options are generally MFJ or married filing separately (MFS). Many spouses going through the divorce process choose to not file jointly to avoid each other at this step, but filing as MFS generally has less favorable tax consequences than filing jointly. Again, adjusting your withholdings with a W-4 check-up may be the key to unlocking less of a tax liability during tax time.

A third option
In some situations, a married taxpayer may qualify to be “considered unmarried” for tax purposes, allowing the married taxpayer to file using the head of household filing status (with a qualifying child or qualifying relative) instead of using the less favorable MFS filing status. You are considered unmarried for tax purposes for the entire year if all of the following apply:

  1. You and your spouse are filing separate returns for the tax year.
  2. You paid more than half the cost of keeping up the home for the tax year.
  3. Your spouse did not live in the home during the last six months of the tax year. Note that your spouse is considered to live in the home if he or she was temporarily absent due to special circumstances (such as illness, education, business, vacation, or military).
  4. You have a dependent child, stepchild, or eligible foster child with whom you shared a main home for more than half of the tax year.
  5. You have a dependent child, stepchild or eligible foster child with whom you can claim a dependency exemption for (even if you claiming it because you released the exemption to the noncustodial parent under the rules for children of divorced or separated parents).

Note: Only your child, stepchild or eligible foster child will be a qualifying child or qualifying relative for the purpose of being considered unmarried for tax purposes (allowing the head of household filing status). Other dependents (including close relatives, such as grandchildren) are not qualifying children or qualifying relatives for the purpose of being considered considered unmarried.

What about an Annulment?

If you obtain a decree of annulment from a competent state court, finding that no valid marriage ever existed under state law, then you were not considered to be married for tax purposes. This means you must file amended returns for all tax years affected by the annulment that are not closed by the statute of limitations. The statute of limitations generally does not end until 3 years after the later of the due date of the original return or the date of filing. On the amended return, you should change the filing status to single or head of household, as appropriate.

If you aren’t sure how your next life event will affect your particular situation, consult with a knowledgeable tax professional for more information as you embark on the next chapter in your life.

Post originally appeared on H&R Block’s Block Talk.

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