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How does divorce affect your taxes? Part 1: filing status

On Behalf of | Jan 2, 2015 | Tax Controversies

For many years, the divorce rate for first marriages hovered around 50 percent in the U.S. It was as if every marriage were a coin flip.

The rate has declined somewhat now, to around 40 percent. But this still means a lot of people end up getting divorced, raising issues that range from the emotional to the financial.

One of those issues is the effect of divorce on taxes. In this two-part post, we will discuss that question.

IRS Publication 504 sets out the basic rules for divorced or separated individuals when filing tax returns. The first topic this publication addresses is filing status.

As we noted in our July 24 post in 2012, checking the box for “single” rather than married under filing status is not as simple as it may seem.

Suppose you and your spouse have separated, but your divorce decree has not yet become official. If a court decree finalizing the divorce does not come by the end of the year, the IRS will generally consider you to have been married for the entire year. In other words, even if you are living separately and divorce proceedings are well underway under state law, you are still married for federal tax purposes.

There is, however, an exception to this rule that may be available. In certain cases, someone who lives apart from his or her spouse may be able to claim head of household status and file as an unmarried person. Head of household status is important because it allows for greater tax deductions than otherwise.

If you and your ex-spouse have minor children, there is also the question of which parent gets to claim tax deductions or credits for your children.

In short, there are a lot of potential tax issues that can come up in a divorce. We will continue discussing them next week in part two of this post.

Source: IRS.gov, “Divorced or Separated Individuals


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