Ellen Wanamaker

Question:

If we do not use the married filing jointly filing status before the divorce, what are the tax ramifications?

Whenever possible it is typically advantageous to file a joint tax return. This generally insures savings for you both. For each filing status the Internal Revenue Service applies tax rates from varied charts.

The alternative, married filing separately, has a much higher tax rate. For couples who can not tolerate being together in the same room to have a joint tax return prepared, an alternative is to agree on one tax preparer and separate appointments.

Is Your Tax Filing Status Situation An Exception?

Having comparison returns prepared with the filing status options available to you will insure a minimum combined tax liability. There are a few exceptions to the generality such as when children are involved or when there are extensive medical expenses.

Additionally, if you believe your spouse is not on the up and up with claiming income or is fabricating deductions, it becomes advantageous to file separately. While it may cost more for the current year, you will not be responsible for any penalties or interest should the Internal Revenue Service question your spouse’s questionable claims on the filed tax returns in the future.

Federal income tax rules apply in all states…

Below is an excerpt from the Internal Revenue Service Code, citing specifics:

If you choose married filing separately as your filing status, the following special rules apply. Because of these special rules, you usually pay more tax on a separate return than if you use another filing status you qualify for.

Your tax rate generally is higher than on a joint return because:

  1. Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return.
  2. You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer’s dependent care assistance program is limited to $2,500 (instead of $5,000). However, if you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. For more information about these expenses, the credit, and the exclusion, see chapter 32.
  3. You cannot take the earned income credit.
  4. You cannot take the exclusion or credit for adoption expenses in most cases.
  5. You cannot take the education credits (the American opportunity credit and lifetime learning credit) or the deduction for student loan interest.
  6. You cannot exclude any interest income from qualified U.S. savings bonds you used for higher education expenses.
  7. If you lived with your spouse at any time during the tax year:
    1. You cannot claim the credit for the elderly or the disabled, and
    2. You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.
  8. The following credits and deductions are reduced at income levels half those for a joint return:
    1. The child tax credit,
    2. The retirement savings contributions credit,
    3. The deduction for personal exemptions, and
    4. Itemized deductions.
  9. Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).
  10. If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.”

It can be quite costly if you do not consider all the filing status details when you decide how to file your tax returns while you are still legally married.

It’s always best to consult a tax advisor to avoid throwing money to the wind.

 

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Ellen Wanamaker

Ellen Wanamaker is a Divorce Financial Specialist and Communications Strategist. She began helping women with uncoupling, after her own egregious divorce from which she created a step by step system. Post-divorce, she went on to become a Matrimonial Paralegal, Mediator and Divorce Financial Specialist. Ellen's divorce strengths stem from her financial background, being a federally licensed tax practitioner for more than 25 years,, and investment and insurance advisor. She has been helping women in many stages of divorce set up their finances on autopilot. Ellen is also the author of the popular book "Divorce Starter Tools Women Need."

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