Tax filing status if divorce not finalized?

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mister_sparkle
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Tax filing status if divorce not finalized?

Post by mister_sparkle »

I am in the process of getting divorced, and believe that the final court hearing won't happen until early 2017. My soon to be ex-spouse and I have separated our living situations and we will be filing our taxes separately for 2016.

I'm just wondering how a filing status of married filing separately will impact me in 2016, vs. if I had filed as Single. I'm assuming the tax brackets should be roughly the same but do not know. Any other tax considerations I should be taking into account here? TIA.
jebmke
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Re: Tax filing status if divorce not finalized?

Post by jebmke »

Filing MFS is typically the worst of all choices. In my TaxAide work I always try to convince people to try to file jointly and work out a fair split of the liability.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
randomguy
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Re: Tax filing status if divorce not finalized?

Post by randomguy »

jebmke wrote:Filing MFS is typically the worst of all choices. In my TaxAide work I always try to convince people to try to file jointly and work out a fair split of the liability.
+1. Although with 2 people there is a chance that one is slight winner and one is a big loser. If your situation is simple (i.e. jobs, house, and some investment income), run it both ways and see what the numbers look like.
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mister_sparkle
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Re: Tax filing status if divorce not finalized?

Post by mister_sparkle »

Not an option due to the hostility between us. Plus, I have no idea how she's handled any of her earnings or tax payments this year given that she's not a W-2 employee, so that's a hornets nest I am staying away from.
jebmke
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Re: Tax filing status if divorce not finalized?

Post by jebmke »

mister_sparkle wrote:Not an option due to the hostility between us. Plus, I have no idea how she's handled any of her earnings or tax payments this year given that she's not a W-2 employee, so that's a hornets nest I am staying away from.
Some things will need to be coordinated. For example, if you file MFS, you both have to either (a) take standard deduction or (b) itemize. You can't individually choose.

Filing Single is not an option.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
tomd37
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Re: Tax filing status if divorce not finalized?

Post by tomd37 »

Are there any children involved?
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mister_sparkle
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Re: Tax filing status if divorce not finalized?

Post by mister_sparkle »

jebmke wrote:
mister_sparkle wrote:Not an option due to the hostility between us. Plus, I have no idea how she's handled any of her earnings or tax payments this year given that she's not a W-2 employee, so that's a hornets nest I am staying away from.
Some things will need to be coordinated. For example, if you file MFS, you both have to either (a) take standard deduction or (b) itemize. You can't individually choose.

Filing Single is not an option.
Ugh, well that is unfortunate, as taking the standard deduction for me is going to cost me a few thousand dollars. I don't think we had enough Schedule A deductions for us both to itemize vs. the combined total of 2 MFS standard deductions.

No children involved, btw.
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retiredjg
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Re: Tax filing status if divorce not finalized?

Post by retiredjg »

If you have contributed to Roth IRA for 2016, you may have to make it un-happen. The income limits for married filing separately are very low.

The limits for deducting tIRA contributions are also very low.

You might also want to check out IRS publications such as Pub 504.
MarkNYC
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Re: Tax filing status if divorce not finalized?

Post by MarkNYC »

mister_sparkle wrote:Not an option due to the hostility between us. Plus, I have no idea how she's handled any of her earnings or tax payments this year given that she's not a W-2 employee, so that's a hornets nest I am staying away from.
When the split up is hostile, certain tax issues can be complicated, including the allocation of joint estimated tax payments for the year. It's not that unusual for hostile spouses to both claim 100% of estimated tax payments, including any overpayment from the prior year joint return that was applied to current year tax.

On married-separate tax returns, joint federal estimated payments can be divided in any way that both agree (state rules may differ). If they can't agree, then each is entitled to a portion of the tax payments, based on the ratio of his current year federal tax to hers. It doesn't matter which spouse files first. So if his federal tax is $20k and hers is $30K, he would be entitled to 40% of the estimated payments. Obtaining a copy of the other's tax return in order to get this done correctly may be difficult, although the IRS might help in certain situations.

If the estimated tax payments were made in the name and SSN of only one spouse, then the allocation rules would not apply.
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mister_sparkle
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Re: Tax filing status if divorce not finalized?

Post by mister_sparkle »

retiredjg wrote:If you have contributed to Roth IRA for 2016, you may have to make it un-happen. The income limits for married filing separately are very low.
:shock:

Over $1 in income, and the Roth maximum phases out. Over $10K, and you can't contribute at all. I contributed to my Roth in January, so I will have to reverse all of it. Thanks for the heads-up.
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retiredjg
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Re: Tax filing status if divorce not finalized?

Post by retiredjg »

Yes, it is shocking and I don't understand any reason for it. But something you need to know.
SouthernCPA
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Re: Tax filing status if divorce not finalized?

Post by SouthernCPA »

I think your best bet will be to use a neutral tax preparer that you can each drop documents off to and have them prepare the return MFJ. That way you dont even need to talk to each other in the process. The cost of the preparer will be less than the tax hits you'll likely take going MFS.
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retiredjg
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Re: Tax filing status if divorce not finalized?

Post by retiredjg »

Neutral tax preparer sounds like a great idea. Both lawyers should get on board and agree on one. It will make everybody's life easier.
MarkNYC
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Re: Tax filing status if divorce not finalized?

Post by MarkNYC »

mister_sparkle wrote:
jebmke wrote:
mister_sparkle wrote:Not an option due to the hostility between us. Plus, I have no idea how she's handled any of her earnings or tax payments this year given that she's not a W-2 employee, so that's a hornets nest I am staying away from.
Some things will need to be coordinated. For example, if you file MFS, you both have to either (a) take standard deduction or (b) itemize. You can't individually choose.

Filing Single is not an option.
Ugh, well that is unfortunate, as taking the standard deduction for me is going to cost me a few thousand dollars. I don't think we had enough Schedule A deductions for us both to itemize vs. the combined total of 2 MFS standard deductions.
On the federal tax returns, if one spouse chooses to itemize deductions, then the other spouse must also itemize. It doesn't matter which spouse files first, which means that one spouse cannot be forced to take the standard deduction based on a choice made by the other spouse.
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Re: Tax filing status if divorce not finalized?

Post by tomd37 »

When using MFJ filing status each is signing, subject to the penalties of perjury, that the return is accurate. From what I read the OP is not so sure of that. Signing such a return I believe leaves him liable for any inaccuracies of such a return.
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SouthernCPA
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Re: Tax filing status if divorce not finalized?

Post by SouthernCPA »

retiredjg wrote:Neutral tax preparer sounds like a great idea. Both lawyers should get on board and agree on one. It will make everybody's life easier.
I've seen some nasty divorces among my client base over the years...This happens more than you'd probably imagine. People get irrational in divorces and are willing to take huge financial hits just so they can avoid their spouse/ex spouse.
SouthernCPA
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Re: Tax filing status if divorce not finalized?

Post by SouthernCPA »

tomd37 wrote:When using MFJ filing status each is signing, subject to the penalties of perjury, that the return is accurate. From what I read the OP is not so sure of that. Signing such a return I believe leaves him liable for any inaccuracies of such a return.
OP could possibly qualify for "innocent spouse relief" in this instance if OP is not aware of incorrect information by the spouse.
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Re: Tax filing status if divorce not finalized?

Post by tomd37 »

SouthernCPA,
Is the difference between Injured Spouse Relief and Innocent Spouse Relief basically injured allows the assignment of income and tax refund to each taxpayer and innocent allows one of the taxpayers relief if the other fails to report proper data?
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retiredjg
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Re: Tax filing status if divorce not finalized?

Post by retiredjg »

This link seems to be a map to different things that apply to "married filing separately". Maybe this could be helpful.

http://taxmap.ntis.gov/taxmap/pub17/p17-013.htm
SouthernCPA
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Re: Tax filing status if divorce not finalized?

Post by SouthernCPA »

tomd37 wrote:SouthernCPA,
Is the difference between Injured Spouse Relief and Innocent Spouse Relief basically injured allows the assignment of income and tax refund to each taxpayer and innocent allows one of the taxpayers relief if the other fails to report proper data?
Innocent Spouse Relief allows a taxpayer to be relieved from additional tax, penalties and interest from the other spouse deliberately under reporting income.

Injured Spouse Relief allows a taxpayer to preserve their share of the refund and protect it from being seized due to the other spouses debts/liabilities.
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